HRA Exemption: Starting from April 1, 2026, with the new financial year, salaried taxpayers have some positive updates. The government has made significant changes to the house rent allowance (HRA) rules, broadening the list of cities where employees can claim HRA up to 50% of their basic salary. This exemption falls under the Income Tax Rules, 2026, as announced by the Central Board of Direct Taxes (CBDT).
The number of metro cities has increased from 4 to 8.
Previously, only employees residing in four major metropolitan cities: Delhi, Mumbai, Kolkata, and Chennai, could benefit from the HRA tax exemption of up to 50% of their basic salary. For other cities, the limit was set at 40%. Now, four additional cities: Bengaluru, Hyderabad, Pune, and Ahmedabad, have been included in this list. Employees in these eight cities can now claim half (50%) of their basic salary as HRA exemption, which will lower their taxable income and enhance their take-home pay.
Why was this decision necessary?
Experts suggest that this change is essential to bridge the gap between escalating rents and the actual situation. In cities like Bengaluru and Pune, rents have surged significantly in recent years, often reaching levels similar to those in older metro cities. According to specialists, this initiative will leave the middle class with more disposable income, which will also boost the demand for rental housing in urban areas.
Additional benefits for those under the old tax regime
In addition to HRA, the government has raised the limits for several other deductions for individuals choosing the old tax regime:
Children’s Education and Hostel: The exemption limit for children’s education and hostel allowance has been increased.
Free Meal: There is also relief on coupons or free meals provided by the workplace.
Foreign travel and studies: The TCS on expenses related to foreign studies or travel will now be reduced.
Compliance and speculation control
While relief measures have been introduced, regulations have also been tightened. Technology will now facilitate more comprehensive scrutiny of compliance.
