Short answer
From FY 2026-27, the HRA exemption limit is 50% of basic salary (plus DA) in eight cities: Delhi, Mumbai, Kolkata, Chennai, Bengaluru, Hyderabad, Pune, Ahmedabad. Everywhere else it stays 40%. The exempt amount is still the lowest of three figures, and HRA exemption is available only in the old regime.
The three-way HRA rule
The tax-free part of your House Rent Allowance is the lowest of:
- the HRA you actually receive;
- rent paid minus 10% of salary;
- 50% of salary if you live in one of the listed cities, otherwise 40%.
“Salary” here means basic pay plus dearness allowance that counts for retirement benefits, not your gross pay. The rest of your HRA is taxed like normal salary. You can claim this only under the old regime; the new regime (Section 202) does not allow it.
Which cities get 50% from FY 2026-27
| City | FY 2025-26 | FY 2026-27 |
|---|---|---|
| Delhi | 50% | 50% |
| Mumbai | 50% | 50% |
| Kolkata | 50% | 50% |
| Chennai | 50% | 50% |
| Bengaluru | 40% | 50% |
| Hyderabad | 40% | 50% |
| Pune | 40% | 50% |
| Ahmedabad | 40% | 50% |
| All other cities | 40% | 40% |
The Income-tax Rules, 2026, notified on 20 March 2026, add Bengaluru, Hyderabad, Pune, Ahmedabad to the four original metros.
Worked examples: two Pune renters
Both employees have basic salary of ₹6,00,000 a year, HRA of ₹3,00,000 and no DA. Only the rent differs.
Example 1: rent ₹4,20,000 a year (₹35,000 a month)
| FY 2025-26 (40%) | FY 2026-27 (50%) | |
|---|---|---|
| HRA received | ₹3,00,000 | ₹3,00,000 |
| Rent − 10% of salary | ₹3,60,000 | ₹3,60,000 |
| % of salary limit | ₹2,40,000 | ₹3,00,000 |
| Exempt HRA (lowest) | ₹2,40,000 | ₹3,00,000 |
| Taxable HRA | ₹60,000 | ₹0 |
Rent minus 10% of salary is ₹3,60,000, higher than both percentage limits, so the city limit decides. It rises from 40% (₹2,40,000) to 50% (₹3,00,000), and the exemption goes up by ₹60,000, from ₹2,40,000 to ₹3,00,000. On a ₹15 lakh salary with ₹1.5 lakh of Section 123 (earlier 80C) investments in the old regime, that cuts tax by ₹18,720 a year.
Example 2: rent ₹3,00,000 a year (₹25,000 a month)
| FY 2025-26 (40%) | FY 2026-27 (50%) | |
|---|---|---|
| HRA received | ₹3,00,000 | ₹3,00,000 |
| Rent − 10% of salary | ₹2,40,000 | ₹2,40,000 |
| % of salary limit | ₹2,40,000 | ₹3,00,000 |
| Exempt HRA (lowest) | ₹2,40,000 | ₹2,40,000 |
| Taxable HRA | ₹60,000 | ₹60,000 |
Here the exemption stays at ₹2,40,000 in both years. The lowest of the three figures is rent minus 10% of salary (₹2,40,000), which equals the old 40% limit and is below the new 50% one, so raising the city limit changes nothing: the rent test was already the binding limit. The new rule only helps if your rent is high enough that the percentage-of-salary limit was the one holding you back.
Try your own numbers in the HRA exemption calculator.
Does a bigger HRA exemption make the old regime worth it?
Only if your total deductions are large enough. At a ₹15 lakh salary the old regime needs over ₹5 lakh of deductions in total to beat the new one (see the ₹15 lakh salary page). A big-city HRA exemption plus Section 123 and health insurance can get there; compare both in the regime calculator.
Sources
General information, not tax advice. Please consult a chartered accountant (CA) or tax professional before filing or making financial decisions.