If you rent a home in Bengaluru, Hyderabad, Pune or Ahmedabad, you may have heard some good news: from FY 2026-27, these four cities count as “metro” cities for HRA. That raises the cap on tax-free HRA from 40% to 50% of your basic salary.
But here’s what most headlines miss: not everyone in these cities will save tax. Whether you benefit depends on your salary structure and your rent. Here’s how to check in two minutes.
What Changed
Your tax-free HRA is the lowest of three amounts:
- The HRA you receive
- Rent paid minus 10% of your basic salary
- A percentage of your basic salary: 50% in metro cities, 40% elsewhere
Until now, only Mumbai, Delhi, Kolkata and Chennai got the 50% limit. Under the new Income-tax Rules, Bengaluru, Hyderabad, Pune and Ahmedabad join the list from FY 2026-27 (the year that started on 1 April 2026). Only the third limit changes – the other two stay the same.
Who Actually Benefits
Because you get the lowest of the three amounts, raising one limit only helps if that limit was the one holding you back. You benefit only if both of these are true:
- Your HRA is more than 40% of your basic salary – many companies pay exactly 40% in non-metro cities, and if yours does, the new rule changes nothing.
- Your rent minus 10% of basic is more than 40% of your basic – in other words, your rent is fairly high compared with your salary.
Four Examples
| Monthly Basic / HRA / Rent | Tax-Free HRA Before | From FY 2026-27 | Extra Tax Saved (30% slab) |
|---|---|---|---|
| ₹60,000 / ₹30,000 / ₹35,000 | ₹2,88,000 | ₹3,48,000 | ₹18,720 a year |
| ₹45,000 / ₹22,500 / ₹25,000 | ₹2,16,000 | ₹2,46,000 | ₹9,360 a year |
| ₹60,000 / ₹24,000 / ₹35,000 | ₹2,88,000 | ₹2,88,000 | Nil – HRA is only 40% of basic |
| ₹50,000 / ₹25,000 / ₹22,000 | ₹2,04,000 | ₹2,04,000 | Nil – rent is the limit |
The first two people gain because their HRA is 50% of basic and their rent is high. The third person pays the same rent but gets HRA of only 40% of basic, so the HRA received was already the limit – no change. The fourth person’s rent is the limit, so a higher cap doesn’t help either.
Check your own numbers with our HRA Calculator – select “Yes” for metro city and compare with “No” to see exactly what the new rule is worth to you.
When Does the Change Apply?
- FY 2026-27 (April 2026 – March 2027): the new 50% limit applies. Your employer can use it when deducting TDS from your salary, and you’ll claim it in the return you file in 2027.
- FY 2025-26: the old 40% limit still applies for these four cities, including in the return filed in 2026.
The Big Catch: Old Regime Only
HRA exemption is available only in the old tax regime. Under the new regime – the default – your whole HRA is taxable, metro or not.
For some renters in these four cities, the bigger exemption could be enough to make the old regime the cheaper choice this year, especially combined with 80C investments, health insurance or a home loan. Compare both regimes with our Income Tax Calculator, which already uses the new 8-city list.
What to Do Now
- Check your payslip: what percentage of your basic salary is your HRA?
- Run the numbers in the HRA Calculator with “metro” switched on.
- Decide your regime: if the old regime now saves you more, tell your employer when they ask for your tax declaration.
- Keep your documents ready: rent receipts or a rent agreement, and your landlord’s PAN if your rent is above ₹1 lakh a year.
Disclaimer: This article is for educational purposes only and is not tax advice. Examples assume you rented for the full year and include 4% cess. Tax rules can change – please verify with official sources or consult a chartered accountant. See our full Disclaimer.
