News: 50% HRA Exemption Extends to Bengaluru, Pune, Hyderabad-28-03-2026

Salaried taxpayers in Hyderabad, Pune, Ahmedabad and Bengaluru stand to take home more from April 1, when the 50% House Rent Allowance (HRA) exemption limit is extended to these cities. Because HRA relief exists only under the old tax regime, however, they need to compare their liability under both regimes before choosing.

Under Section 10(13A) of the Income Tax Act, HRA is partially exempt. The exemption is the least of three amounts: actual HRA received, rent paid minus 10% of salary, or 50% of salary in metros and 40% elsewhere. Until now only Delhi, Mumbai, Chennai and Kolkata qualified for the 50% limit.

Consider Priya Banik, a mid-level professional in Hyderabad who pays high rent and receives HRA close to half her basic salary. With the higher ceiling she can use her eligible HRA in full under the old regime, and by combining it with the standard deduction and 80C she can raise her take-home pay.

Deepesh Chheda, Partner, Dhruva Advisors, said many individuals could have claimed a higher exemption but were held back by the lower threshold, which the change now removes.

The gain arises only where the percentage cap was the binding limit in the three-way computation. B. Shravanth Shanker, AOR, Managing Partner, B. Shanker Advocates, said it mainly helps mid- to high-income employees whose HRA is structured near 50% of basic pay and whose rent is substantial, with incremental exemptions of Rs 60,000-Rs 1.2 lakh yielding meaningful savings at higher slab rates. He called it a targeted benefit for high-rent profiles and not a universal tax cut, adding that the reform also pushes taxpayers towards formal, well-documented rental arrangements under a stricter compliance framework.

For maximum benefit, HRA should ideally be about 50 per cent of basic pay, with rent at a level where neither the 10 per cent of salary rule nor actual HRA restricts the deduction.

On the regime choice, Chheda said employees with substantial rent who can maximise HRA may still find the old regime better, while for those with lower rent or limited deductions the new regime’s lower rates and simplicity may outweigh HRA benefits. A case-specific comparison of salary structure, rent and overall deductions is essential, he said.

The decision should rest on a break-even analysis: add up old-regime deductions such as HRA, 80C, 80D and housing, and check whether they outweigh the higher tax rates. The 50% limit helps taxpayers in metro cities particularly when total deductions are around Rs 3-Rs 8 lakh, provided they are genuine and well documented. The new regime usually suits lower-income taxpayers because of the Section 87A rebate and higher-income taxpayers because of the surcharge cap.

In the Rs 15-Rs 30 lakh band, the result depends on the scale of rent and deductions. Compliance burden and audit exposure also matter, and the prudent course is to run a comparative computation every year.