# HRA New City List 2026 — Bengaluru, Hyderabad, Pune, Ahmedabad Now Get 50% Exemption

Series: Part 8 of the Income Tax Act 2025 Guide | Rule 279 of Income Tax Rules 2026 | Effective from FY 2026-27 (Tax Year 2026-27) | Read Part 1: Complete Guide →

Quick context: For 20+ years, only Delhi, Mumbai, Kolkata and Chennai qualified for the 50% HRA exemption. Every other city — including Bengaluru, Hyderabad, Pune and Ahmedabad — was capped at 40%, despite rental costs being equal or higher than the original metros. On March 20, 2026, CBDT notified the Income Tax Rules, 2026 — formally expanding the 50% HRA category to 8 cities. Effective from April 1, 2026. For a typical IT professional in Bengaluru or Pune, this is an instant tax saving of ₹15,000–₹30,000 per year. Source: Income Tax Department — CBDT Notification.

This guide gives you the rule reference, the math, the city-wise ROI, the new Form 124 disclosure requirements, and a few bonus allowance hikes most articles miss.

# The Headline: From 4 Cities to 8

Statutory reference: - Old Act: Section 10(13A) of Income Tax Act, 1961 + Rule 2A of Income Tax Rules, 1962 - New Act: Schedule II of Income Tax Act, 2025 + Rule 279 of Income Tax Rules, 2026

When does this apply? - For FY 2025-26 (filed in July/August 2026): Old rules — only 4 cities at 50% - For FY 2026-27 onwards (filed from 2027): New rules — 8 cities at 50%

So your April 2026 salary slip onwards starts reflecting the higher exemption — but the benefit shows up in next year's ITR filing.

# How HRA Exemption Is Calculated — The 3-Part Test

HRA exemption equals the least of these three amounts:

1. Actual HRA received from employer
2. Rent paid minus 10% of (Basic + DA)
3. 50% of (Basic + DA) if you live in any of the 8 metro cities, OR 40% of (Basic + DA) if you live in any other city

Whichever is the smallest is your exempt HRA. The rest is taxable.

# Quick example — same employee, different cities

Mr. X earns Basic + DA of ₹8,00,000 annually. Receives HRA of ₹3,60,000. Pays rent of ₹3,00,000 (₹25,000/month).

If Mr. X lives in Bengaluru (pre-April 2026): Least of (1, 2, 3b) = ₹2,20,000 exempt If Mr. X lives in Bengaluru (post-April 2026): Least of (1, 2, 3a) = still ₹2,20,000 exempt

Wait — in this case the 40% vs 50% didn't matter, because condition (2) was the binding constraint. So the new rule doesn't help every salaried employee equally. It helps those for whom condition (3) was the limiting factor.

# Who Actually Benefits from the New Rule?

The 50% expansion helps you only if condition (3) was the binding constraint in your HRA calculation. That happens when:

✅ Your rent is high relative to basic salary (typically 35%+ of basic) ✅ Your HRA component is generous (typically 40-50% of basic) ✅ You're in old tax regime (new regime gives no HRA exemption)

If you're paying low rent relative to your basic salary, the new rule may not change your exemption at all. Condition (2) will still be the binding constraint.

# Quick test — does the new rule benefit you?

Compare your annual rent against 50% of your Basic + DA: - If rent > 50% of (Basic + DA): the new rule helps you — extra 10% relief - If rent < 40% of (Basic + DA): no change — condition (2) is binding - If rent between 40-50%: partial relief

For most Bengaluru/Pune/Hyderabad IT professionals paying ₹25,000–₹50,000 rent monthly, condition (3) was definitely binding under old 40% rule. They will see meaningful savings.

# City-Wise ROI Calculator (Real Numbers)

# Case Study #1 — Bengaluru IT Professional (₹15 LPA CTC)

Salary Structure: - Basic + DA: ₹7,50,000/year (₹62,500/month) - HRA component: ₹3,75,000/year (₹31,250/month) - Rent paid: ₹3,60,000/year (₹30,000/month — typical Bengaluru rent for 2BHK) - Tax bracket: 30%

HRA Exemption Calculation:

Pre-2026 exemption: Least = ₹2,85,000 (condition 2 binding because 50% cap of ₹3,75,000 > rent calc) Wait — let me recheck this. Under 40% rule, (3) = ₹3,00,000. Under 50% rule, (3) = ₹3,75,000. Condition (2) = ₹2,85,000.

So least under either rule = ₹2,85,000. No benefit to this employee.

Lesson: This employee was already capped by condition (2), not condition (3). The 50% expansion doesn't help him.

# Case Study #2 — Bengaluru Senior IT Professional (₹25 LPA CTC, higher rent)

Salary Structure: - Basic + DA: ₹12,00,000/year (₹1,00,000/month) - HRA component: ₹6,00,000/year (₹50,000/month) - Rent paid: ₹7,20,000/year (₹60,000/month — premium apartment) - Tax bracket: 30%

Pre-2026 exemption: ₹4,80,000 (40% cap binding) Post-2026 exemption: ₹6,00,000 (now equal to conditions 1 and 2)

Additional exemption: ₹1,20,000 Annual tax saving @ 30% + 4% cess: ₹37,440

This is where the rule actually delivers value — higher rent, higher basic, condition (3) was binding.

# Case Study #3 — Pune Salaried Professional (₹12 LPA CTC)

Salary Structure: - Basic + DA: ₹6,00,000/year (₹50,000/month) - HRA component: ₹3,00,000/year (₹25,000/month) - Rent paid: ₹3,00,000/year (₹25,000/month) - Tax bracket: 20%

Pre-2026 exemption: ₹2,40,000 Post-2026 exemption: ₹2,40,000

No change. Again, condition (2) was binding. The 50% rule didn't matter.

# Case Study #4 — Hyderabad Tech Lead (₹20 LPA CTC)

Salary Structure: - Basic + DA: ₹10,00,000/year (~₹83,333/month) - HRA component: ₹5,00,000/year (~₹41,667/month) - Rent paid: ₹5,40,000/year (₹45,000/month) - Tax bracket: 30%

Pre-2026 exemption: ₹4,00,000 (40% cap binding) Post-2026 exemption: ₹4,40,000 (condition 2 binding)

Additional exemption: ₹40,000 Annual tax saving @ 30% + 4% cess: ₹12,480

# Case Study #5 — Ahmedabad Manager (₹18 LPA CTC)

Salary Structure: - Basic + DA: ₹9,00,000/year (₹75,000/month) - HRA component: ₹4,50,000/year (₹37,500/month) - Rent paid: ₹4,80,000/year (₹40,000/month) - Tax bracket: 30%

Pre-2026 exemption: ₹3,60,000 (40% binding) Post-2026 exemption: ₹3,90,000 (condition 2 binding)

Additional exemption: ₹30,000 Annual tax saving @ 30% + 4% cess: ₹9,360

# Founder's Pattern: When Does the Rule Help Most?

Reviewing the 5 case studies above, the rule delivers maximum savings when:

1. Rent is high (>50%) relative to Basic + DA
2. Basic + DA is substantial (≥ ₹8 lakh per year)
3. HRA component is significant (40%+ of basic)
4. Tax bracket is 30%

The typical profile that benefits: mid-to-senior IT professionals, consultants, managers earning ₹18–35 LPA, paying ₹40,000+ monthly rent in Bengaluru, Hyderabad or Pune.

For junior employees (₹6–12 LPA) with moderate rent, condition (2) often remains the binding constraint — no change.

# Quick Salary-vs-Rent Reference Table

For employees in the 4 newly-added cities (Bengaluru, Hyderabad, Pune, Ahmedabad), here's when the new 50% rule actually saves you money:

(Maximum saving assumes HRA component ≥ 50% of Basic + DA, 30% tax slab, condition 3 fully binding.)

# The New Form 124 — Stricter Landlord Disclosure

Along with the 50% city expansion, the Income Tax Rules 2026 introduce enhanced disclosure requirements. The new Form 124 (replacing Form 12BB) requires:

1. Landlord PAN — mandatory if annual rent exceeds ₹1,00,000
2. Landlord relationship disclosure — declare if landlord is a relative
3. Rental property address + city classification (auto-determines 40% vs 50%)
4. Bank transfer/cheque details for rent payment (cash payments above ₹2,00,000/year may be questioned)
5. Lease agreement reference — duration, lock-in, security deposit

# Common pitfalls to avoid:

• Renting from family members: Genuine arm's-length rent allowed, but document everything. Pay via bank transfer. Have a registered/notarized rent agreement. Rent must reflect market rate. Section 23 deeming provisions may apply if landlord is parent/spouse and doesn't show this as their income.
• Cash rent payments: Rent receipts alone are no longer sufficient. From FY 2026-27, employer may require bank statement proof or risk disallowing HRA exemption.
• Multiple landlords in same year: Each requires separate declaration in Form 124 with PAN and amount paid.

# Bonus: Other Income Tax Rules 2026 Allowance Hikes

The CBDT notification of March 20, 2026 contains several other employee-friendly allowance increases most articles miss. If your employer's payroll system updates these, you save additional tax:

Strategic insight: If you have school-going children, ensure your CTC includes Children Education + Hostel Allowance components after April 2026. A salaried employee with 2 children in hostel can claim up to ₹2,40,000+ additional exemption per year through these components alone — far bigger than the HRA expansion benefit.

These allowances also apply only under the old tax regime.

# What Stays the Same (To Avoid Misunderstanding)

# Step-by-Step: How to Claim 50% HRA from FY 2026-27

If you're in Bengaluru, Hyderabad, Pune or Ahmedabad and want to claim the new 50% benefit:

1. Confirm you're in old tax regime for FY 2026-27. If you're in new regime (default Section 202), opt out by filing Form 10-IEA before your ITR due date (only if you have business income — salaried can switch in ITR itself).

1. Get a proper rental agreement — registered or notarized, monthly rent specified, lease period, security deposit. Avoid handshake arrangements.

1. Pay rent via bank transfer / UPI — never cash for amounts > ₹50,000/month. Maintain transaction records.

1. Obtain landlord's PAN — if annual rent > ₹1,00,000. If landlord refuses, you cannot claim HRA exemption (Section 200A reporting requirements).

1. Submit Form 124 to employer (replacing Form 12BB) in late 2026 / early 2027 with: - Annual rent paid - Landlord's name, address, PAN - Rental property address - Lease agreement reference

1. Verify in Form 130 (your Form 16 replacement) issued by employer in June 2027 — confirm HRA exemption is calculated correctly using the 50% metro rate.

1. Cross-check in your ITR (filed by July 31, 2027 for TY 2026-27) — Schedule S salary details should reflect the higher exemption.

1. Retain rent receipts + bank statements for at least 8 years — the department may seek verification under Section 142(1) inquiry.

# Special Cases & Edge Cases

# Q: What if I moved cities mid-year?

If you moved from Bengaluru (newly metro) to Indore (non-metro) in October 2026, calculate HRA exemption separately for each period: - April–September: 50% cap applies (Bengaluru) - October–March: 40% cap applies (Indore)

Pro-rate Basic + DA and rent paid for each period.

# Q: What if I'm in PG / shared accommodation?

PG accommodations qualify as "rent paid" if: - You have a written agreement - PG owner provides receipts with their PAN (above ₹1 lakh threshold) - Payment is documented

Shared apartment rent: claim only your share, documented in a sub-lease or formal arrangement.

# Q: What about hostel accommodation provided by employer?

Different category — that's a perquisite under Section 17(2)(iii), valued under new perquisite rules. Not eligible for HRA exemption since you're not paying rent independently.

# Q: HRA + Home Loan Interest — can I claim both?

Yes, in specific scenarios: - Self-owned house is in one city (claim home loan interest), rented house is in another city for employment (claim HRA) - Self-owned house and rented house both in same city but rented house is closer to office and you have genuine commute necessity

Document the necessity carefully. The IT department may scrutinize.

# Q: Living with parents — can I pay them rent and claim HRA?

Yes, but with conditions: - Parents must declare this rent as their income (Section 22 — Income from House Property) - Rent must be paid via bank transfer (not cash) - Rent must be at fair market value (not inflated) - Property must be owned by parents (not joint with you) - Have a rental agreement

If audited, the department will verify parents' ITR showing this rental income. If they didn't declare it, your HRA exemption will be disallowed and penalty under Section 270A (now Section 438) applies.

# Frequently Asked Questions

Q1. Bengaluru HRA 50% kab se applicable hai? From April 1, 2026 (i.e., FY 2026-27 / Tax Year 2026-27). For your salary earned from April 2026 onwards. The benefit reflects in ITR filed in 2027.

Q2. Pune mein HRA 50% milega kya? Yes. Under Rule 279 of Income Tax Rules, 2026, Pune is now in the 50% category along with Mumbai, Delhi, Kolkata, Chennai, Bengaluru, Hyderabad and Ahmedabad. Available only under old tax regime.

Q3. Hyderabad ke liye HRA exemption kya hai 2026 mein? 50% of (Basic + DA), subject to the 3-part least-of test. Up from 40% earlier. Effective April 1, 2026.

Q4. Kya new tax regime mein 50% HRA milega? No. HRA exemption under Section 10(13A) / Schedule II is available only under the old tax regime. New regime (Section 202) excludes HRA exemption entirely.

Q5. Mera FY 2025-26 ka ITR — Bengaluru/Pune walle 50% claim kar sakte hain? No. For ITR being filed in July/August 2026 covering FY 2025-26, old rules apply — only 4 cities (Delhi, Mumbai, Kolkata, Chennai) get 50%. Bengaluru/Pune/Hyderabad/Ahmedabad get 40%. The new rule applies from FY 2026-27 onwards.

Q6. Form 124 vs Form 12BB kya difference hai? Form 124 is the new equivalent of Form 12BB under the Income Tax Rules 2026. It requires more detailed disclosures: landlord PAN (above ₹1L rent), relationship disclosure, payment mode, lease agreement reference. Effective from declarations for FY 2026-27.

Q7. Landlord PAN nahi de raha — kya karu? If your annual rent exceeds ₹1,00,000 and the landlord refuses to provide PAN, employer cannot allow HRA exemption (Rule 26C requirement). You can: (a) Get the landlord's PAN via persuasion / agreement (b) Switch to alternate accommodation (c) Claim only up to ₹1,00,000 rent (below PAN threshold) — limits benefit (d) Forgo HRA exemption and claim Section 80GG / Section 134 (rent paid by non-HRA recipients) — has its own conditions

Q8. Parents ko rent dene se HRA milega? Yes, subject to: bank transfer (not cash), fair market rent, parents declaring it in their ITR as Income from House Property, written rental agreement. If parents don't declare the rent in their ITR, your HRA exemption gets disallowed under audit.

Q9. Children Education aur Hostel allowance ke naye limits kya hain? From April 1, 2026: - Children Education Allowance: ₹100 → ₹3,000 per month per child (max 2 children) - Children Hostel Allowance: ₹300 → ₹9,000 per month per child (max 2 children) Combined: up to ₹2,88,000 annual exemption per family with 2 children in hostel.

Q10. Income Tax Act 2025 mein HRA ka section number? Schedule II of the Income Tax Act, 2025 (replacing Section 10(13A) of the 1961 Act). Rule reference: Rule 279 of Income Tax Rules, 2026 (replacing Rule 2A of the 1962 Rules).

# Action Checklist for Pune / Bengaluru / Hyderabad / Ahmedabad Employees

If you're in any of these 4 newly-added metro cities:

• [ ] Check current HRA exemption for FY 2025-26 — use 40% cap (old rule still applies for current filing)
• [ ] Estimate FY 2026-27 saving using the table above — based on your Basic + DA and rent
• [ ] If rent is currently below 40% of Basic + DA — the new rule won't help; focus on other deductions instead
• [ ] If rent is between 40-50% of Basic + DA — partial benefit; finalize your tax planning accordingly
• [ ] If rent exceeds 50% of Basic + DA — full benefit available; prepare documentation
• [ ] Confirm old tax regime selection for FY 2026-27 if HRA + other deductions exceed standard ₹75K + Section 87A
• [ ] Update rental agreement to be registered/notarized before April 2026
• [ ] Get landlord PAN on record if rent > ₹1 lakh annually
• [ ] Switch to bank transfer / UPI for rent payments — no more cash
• [ ] Anticipate Form 124 submission to employer in late 2026 / early 2027
• [ ] Consider salary restructuring to maximize HRA component within CTC (if possible)

# Should You Restructure Your Salary Now?

If you're in one of the 4 new metro cities and currently in old tax regime, this is a good moment to negotiate CTC restructuring with your employer for FY 2026-27:

Maximize HRA component: - Push HRA up to 50% of Basic (matching the new metro cap) - Reduce other taxable allowances (special allowance, food coupons taxable portion) - Children Education + Hostel allowance components inserted if applicable

Example restructuring for a ₹20 LPA CTC in Bengaluru (old regime):

Assuming rent ₹50,000/month, the restructured CTC delivers ~₹1,20,000 additional exempt HRA + ₹72,000 children education exempt. Tax saving at 30% slab + cess: ~₹60,000 per year, purely from restructuring within the same CTC.

This requires employer flexibility (most large IT companies offer Flexible Benefit Plans). Approach your HR / Compensation team with the request.

# Series — All Parts of the Income Tax Act 2025 Guide

1. Part 1: Income Tax Act 2025 — Complete Guide
2. Part 2: Tax Year vs Previous Year vs Assessment Year (publishing soon)
3. Part 3: Section Mapping Cheat Sheet — Old vs New
4. Part 4: Form 130 vs Form 16 — Salaried Guide (publishing soon)
5. Part 5: Section 393 Consolidated TDS — Business Guide (publishing soon)
6. Part 6: Section 123 Deductions Deep Dive (publishing soon)
7. Part 7: ITR-U at 48 Months — Strategic Guide
8. Part 8: HRA New City List 2026 — You are reading this

# Official References

1. Income Tax Department — Rule 279 of Income Tax Rules, 2026 (CBDT Notification, March 20, 2026)
2. Schedule II, Income Tax Act 2025 — HRA exemption framework
3. Section 10(13A), Income Tax Act 1961 + Rule 2A (operative until 31 March 2026)
4. Income Tax Department FAQ — Salary Income: incometax.gov.in
5. CBDT Notification on Income Tax Rules 2026 (dated March 20, 2026)

# Bottom Line — Founder's Perspective

For 20+ years, India's HRA framework froze the "metro city" definition in the 1962 Rules. Bengaluru and Hyderabad emerged as the country's IT hubs, Pune became Maharashtra's manufacturing and tech capital, Ahmedabad as the western commercial hub — but the rule didn't reflect these economic realities. Salaried professionals in these cities were paying metro-level rents but getting non-metro-level tax benefits.

The Income Tax Rules 2026 finally fix that 20-year anachronism.

For most beneficiaries, the saving is ₹15,000–₹40,000 per year — meaningful but not life-changing. The real value is in combining the HRA expansion with other rule changes announced in the same notification: - Children Education Allowance (100x increase to ₹3,000/month per child) - Children Hostel Allowance (30x increase to ₹9,000/month per child) - Transport allowances increased for disabled and transport-sector employees

Aggregate potential saving for a typical Bengaluru/Pune family with 2 kids: ₹70,000–₹1,20,000 per year through old regime optimization — if salary structure is set up correctly.

If you're in one of the 4 newly-added cities, the next 6 months are the right time to: 1. Confirm old vs new tax regime suitability 2. Restructure CTC with employer if possible 3. Update rental agreement documentation 4. Prepare for Form 124 disclosure requirements

For one-on-one CTC restructuring advice based on your specific salary structure, reach out via VittSphere ONE Personal CFO platform or Prabhakar Kumar & Co..

Author: Prabhakar Kumar is a practising Chartered Accountant (ICAI, Nov 2019), founder of VittSphere ONE — India's AI-powered Personal CFO — and Prabhakar Kumar & Co., a CA firm based in Pune (one of the 4 newly-added 50% HRA cities).

Disclaimer: This article is for educational purposes only and does not constitute tax or legal advice. References: Income Tax Rules, 2026 (notified by CBDT on 20 March 2026, effective from 1 April 2026), Rule 279 specifying the 8 metro cities for 50% HRA exemption, Schedule II of the Income Tax Act, 2025 governing exempt allowances. For specific salary restructuring or tax planning, consult a qualified Chartered Accountant.

Written by

Prabhakar Kumar

Chartered Accountant (ICAI, Nov 2019)

Founder of VittSphere Technologies. Practicing CA serving 200+ MSME clients across Pune. 86% win-rate at AO and CIT(A) level tax appeals. Writes on Indian taxation, capital gains, and personal finance.