New Income Tax Rules: The government has announced the Income Tax Rules, 2026. These regulations will take effect starting April 1, 2026. The purpose of these rules is to enhance compliance and streamline tax processes by minimizing the number of regulations. The updated Income Tax Rules modify the provisions concerning house rent allowance. The exemptions associated with HRA have been made more logical and clear.
Tax exemption on HRA is exclusively available to individuals who submit income tax returns under the old tax regime. This exemption is not applicable under the new tax regime. To qualify for this exemption, you must actually reside in a rented property that is not registered in your name or your spouse’s name. Additionally, HRA must be part of your salary package.
Three primary criteria must be met to qualify for the income tax exemption on HRA. The exemption is determined by the actual HRA amount received from your employer, 40% or 50% of the basic salary based on the city, or the annual rent paid minus 10% of the basic salary and dearness allowance. For instance, if your actual HRA amount is less than any of these three figures, you can apply for the exemption.
Now, a 50% discount will be applicable in 8 cities
The most notable change in the new income tax regulations pertains to the definition of “metro cities.” Previously, under the old rules, only employees residing in Delhi, Mumbai, Kolkata, and Chennai qualified for HRA exemptions of up to 50% of their basic salary. For all other cities, the limit was set at 40%. Starting April 1, 2026, the government will expand this list by adding four additional major cities, allowing tenants in Bengaluru, Pune, Hyderabad, and Ahmedabad to also claim HRA exemptions of up to 50% of their basic salary. This change provides significant relief for millions of employees living in these high-cost cities. The 40% limit will continue to apply to all other cities.