HRA exemption and the eight 50% cities
How the HRA exemption is worked out for FY 2026-27, why Bengaluru, Hyderabad, Pune and Ahmedabad now get the 50% limit, and exactly when rent makes the old regime worth it.
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If you pay rent and your salary includes house rent allowance, part of that allowance can be tax-free under the old regime. From Tax Year 2026-27 (FY 2026-27) the limit is higher in more places: Rule 279 of the Income-tax Rules 2026 puts eight cities on the 50% list, where it used to be four. Bengaluru, Hyderabad, Pune and Ahmedabad join Mumbai, Delhi, Kolkata and Chennai.
Many salary calculators still treat the four new cities as 40% cities. For anyone renting in them that understates the exemption by up to a tenth of Basic, and can wrongly make the new regime look like the only sensible choice.
How the exemption is worked out
The exempt part of your HRA is the least of three amounts, all for the same year:
- The HRA you actually receive.
- The rent you pay, minus 10% of your Basic and DA.
- 50% of Basic and DA in the eight cities, or 40% anywhere else.
"Basic" here means Basic plus any dearness allowance that counts for retirement benefits, and nothing else. The exemption only exists in the old regime: the new regime ignores HRA entirely, so it only helps if the old regime comes out cheaper overall.
The eight cities
| City | HRA limit | On the 50% list | Professional tax |
|---|---|---|---|
| Mumbai | 50% of Basic | Long-standing | Maharashtra |
| Delhi | 50% of Basic | Long-standing | None in Delhi |
| Kolkata | 50% of Basic | Long-standing | West Bengal |
| Chennai | 50% of Basic | Long-standing | Chennai |
| Bengaluru | 50% of Basic | From 2026-27 | Karnataka |
| Hyderabad | 50% of Basic | From 2026-27 | Telangana |
| Pune | 50% of Basic | From 2026-27 | Maharashtra |
| Ahmedabad | 50% of Basic | From 2026-27 | Gujarat |
| Everywhere else | 40% of Basic | Not on the list | By state |
What the 50% limit is worth
The yearly exemption at a few salaries and rents, using the calculator's standard structure (Basic at half of CTC, HRA at half of Basic). The higher limit only matters once rent is high enough for the percentage to be the binding limb; below that, rent minus 10% of Basic decides.
| CTC | ₹15,000 rent a month | ₹25,000 rent a month | ₹40,000 rent a month |
|---|---|---|---|
| 10 LPA | ₹1,30,000 | ₹2,50,000₹2,00,000 in a 40% city | ₹2,50,000₹2,00,000 in a 40% city |
| 15 LPA | ₹1,05,000 | ₹2,25,000 | ₹3,75,000₹3,00,000 in a 40% city |
| 20 LPA | ₹80,000 | ₹2,00,000 | ₹3,80,000 |
| 30 LPA | ₹30,000 | ₹1,50,000 | ₹3,30,000 |
When rent makes the old regime worth it
The exemption only saves tax if the old regime ends up cheaper than the new one. The table gives the monthly rent at which that starts to happen, assuming you also fill section 123 (80C), the extra ₹50,000 for NPS and ₹25,000 of health insurance, but have no home loan.
| CTC | In one of the eight cities | Anywhere else |
|---|---|---|
| 15 LPA | From ₹31,500 a month | From ₹31,500 a month |
| 20 LPA | From ₹46,500 a month | No rent is enough |
| 25 LPA | From ₹57,500 a month | No rent is enough |
| 30 LPA | From ₹60,500 a month | From ₹60,500 a month |
At these salaries the 40% limit is often not enough on its own: the exemption tops out before it can close the gap to the new regime. That is the practical difference the eight-city rule makes, and the reason a calculator that still uses four cities gets the regime choice wrong for people renting in Bengaluru, Hyderabad, Pune and Ahmedabad.
Rent receipts and your landlord's PAN
Your employer will ask for rent receipts or a rent agreement before applying the exemption to your salary. If you pay more than ₹1,00,000 a year in rent, about ₹8,334 a month, you also have to give your landlord's PAN. If your employer did not apply the exemption during the year, you can still claim it in your return under the old regime.
Try it with your own figures
The calculator applies the right limit for your city automatically and shows both regimes side by side. Change the city and rent to see the exemption move.
Sources: Income-tax Act, 2025, Schedule III Table Sl. No. 11, read with Rule 279 of the Income-tax Rules 2026 (G.S.R. 198(E), 20 March 2026); section 202(2) for the new regime. Full method.