HRA Exemption After April 2026: Expanded Metro List and Practical Impact
From 1 April 2026, the House Rent Allowance (HRA) landscape changes substantially for salaried assessees living in major Indian cities. What was earlier a 4-metro framework under Section 10(13A) of the Income Tax Act 1961 will now operate as an 8-metro regime for HRA exemption computation, pursuant to the Income Tax Rules 2026.
Until FY 2025-26, only Delhi, Mumbai, Kolkata, and Chennai enjoyed the higher 50% of salary limit in the HRA formula. All other cities, including large urban centres like Bangalore, Hyderabad, Pune, and Ahmedabad, were treated as non-metro locations and capped at 40% of salary for the third HRA condition.
With effect from FY 2026-27, Bangalore, Hyderabad, Pune, and Ahmedabad join the metro list for HRA purposes. This revision holds significant planning value for salaried assessees and their advisors, especially those operating in these four newly notified cities.
This guide explains:
- How HRA exemption works under
Section 10(13A) - The updated metro classification from 1 April 2026
- Practical tax impact with fresh numerical illustrations
- How to handle the transition between FY 2025-26 and FY 2026-27
- New compliance obligations (including Form 124 and rent paid to family members)
- A step-by-step HRA compliance checklist for April 2026 and beyond
Understanding the HRA Exemption Formula under Section 10(13A)
HRA exemption for salaried assessees opting for the old tax regime is governed by Section 10(13A) read with Rule 2A of the Income Tax Rules. The quantum of exemption is determined as the least of the following three components:
- Actual HRA received from the employer during the relevant previous year
- Rent paid minus 10% of salary
- Salary here typically means:
- Basic salary, plus
- Dearness Allowance (to the extent it enters into retirement benefits), plus
- Commission, if it is a fixed percentage of turnover achieved by the employee
- Salary here typically means:
- A specified percentage of salary based on city category:
- 50% of salary for assessees residing in metro cities
- 40% of salary for assessees residing in non-metro cities
Important: HRA exemption is not available under the new tax regime. If an assessee chooses the new regime, no HRA deduction can be claimed, irrespective of the city classification.
The April 2026 change affects only the third condition above, by widening the scope of what qualifies as a metro city.
Revised Metro City Classification from 1 April 2026
From FY 2026-27 (AY 2027-28) onwards, the Income Tax Rules 2026 formally recognise eight cities for the 50% HRA exemption rate. The classification is as follows:
Metro Cities (50% of salary for HRA computation)
- Delhi (existing metro)
- Mumbai (existing metro)
- Kolkata (existing metro)
- Chennai (existing metro)
- Bangalore (treated as metro from 1 April 2026)
- Hyderabad (treated as metro from 1 April 2026)
- Pune (treated as metro from 1 April 2026)
- Ahmedabad (treated as metro from 1 April 2026)
Non-Metro Cities (40% of salary)
- All other Indian cities not mentioned above continue to be treated as non-metro and remain subject to the 40% of salary limit for the third HRA condition.
Note: The metro reclassification impacts only Condition 3 in the HRA formula. Whether this yields an actual tax benefit depends on which of the three conditions is the lowest for a particular assessee.
How the Metro Expansion Affects HRA: Numerical Examples
To appreciate the real-world implications of this rule change, it is essential to compute HRA exemption before and after 1 April 2026 for various income and rent structures. For clarity, the examples below assume the old tax regime is opted and salary = basic salary only (no DA or commission), unless stated otherwise.
Example 1 – No Practical Change Despite Metro Status
Assessee: Salaried professional based in Bangalore (old tax regime)
- Basic salary: Rs. 65,000 per month (Rs. 7,80,000 per year)
- HRA received: Rs. 32,000 per month (Rs. 3,84,000 per year)
- Rent paid: Rs. 27,000 per month (Rs. 3,24,000 per year)