Living in Hyderabad or Bengaluru? You can now claim up to 50% HRA tax exemption

Hyderabad: In a move that brings significant tax relief to salaried employees in major urban centres, the Central government has expanded the scope of House Rent Allowance (HRA) exemption under the newly notified Income Tax Rules, 2026.

The revised provisions increase the exemption limit to 50 per cent of salary for employees residing in additional metro cities, including Hyderabad.

Hyderabad is among newly added ‘Metro Cities’

Until now, only Mumbai, Delhi, Kolkata and Chennai were classified as metro cities for HRA purposes, allowing residents to claim up to 50 per cent of their salary as tax-exempt HRA.

Under the new rules, Hyderabad, Bengaluru, Pune and Ahmedabad have been added to this list. With this expansion, employees living in these eight cities can now avail HRA exemption of up to 50 per cent of their salary.

For employees in non-metro locations, the exemption limit remains unchanged at 40 per cent.

Applicable from FY 2026-27 returns

The updated provisions will come into effect from April 1 and will apply to income tax returns filed in July 2027 for the financial year 2026–27.

Benefit is limited to old tax regime

The enhanced HRA exemption applies only to taxpayers opting for the old tax regime. Individuals choosing the new tax regime will not be eligible for this benefit.

Additionally, taxpayers claiming HRA exemption must now disclose their relationship with the landlord. This information is to be furnished in the newly introduced Form 124.

Part of broader tax law overhaul

The notification is part of the government’s broader effort to simplify India’s income tax framework by replacing the six-decade-old Income Tax Act, 1961.

The new law significantly streamlines the structure:

- Sections reduced from 819 to 536

- Chapters cut down from 47 to 23

- Total word count nearly halved from 5.12 lakh to about 2.6 lakh

- The revised framework also introduces 39 new tables and 40 formulas to improve clarity and usability.

Parliament approval and objective

The new Income Tax Bill received parliamentary approval on August 12. The primary objective of the overhaul is to make tax laws simpler, more transparent, and easier for taxpayers to comply with.

What it means for taxpayers

The inclusion of Hyderabad and other emerging metros is expected to significantly increase take-home savings for salaried professionals paying rent—especially those who continue under the old tax regime.

In essence, the government said the reform aligns tax benefits with India’s evolving urban landscape, recognising the rising cost of living beyond traditional metro cities.