HRA Exemption: 8 Metro Cities from 2026-27
Bengaluru, Hyderabad, Pune and Ahmedabad now count as metros for HRA, raising the tax-free limit from 40% to 50% of salary. How it works, with examples.
By SmartFigure Editorial Team
· 2 min read
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For decades, only four cities counted as “metros” for house rent allowance (HRA): Mumbai, Delhi, Kolkata and Chennai. From tax year 2026-27, under the Income-tax Rules that came with the new Income-tax Act, four more are on the list: Bengaluru, Hyderabad, Pune and Ahmedabad. If you live in one of them and pay rent, more of your HRA can now be tax-free.
How HRA exemption works
The tax-free part of your HRA is the lowest of three amounts:
- The HRA you actually receive.
- Rent paid minus 10% of your salary (basic pay + DA).
- 50% of salary in a metro, or 40% elsewhere.
The metro change affects only the third limit. It helps when that limit is the lowest of the three, which is common for people who pay high rent.
Example: an employee in Bengaluru
Basic salary ₹50,000 a month, HRA ₹25,000 a month, rent ₹30,000 a month. Yearly figures:
| Before (40%) | From 2026-27 (50%) | |
|---|---|---|
| HRA received | ₹3,00,000 | ₹3,00,000 |
| Rent − 10% of basic | ₹3,00,000 | ₹3,00,000 |
| % of basic | ₹2,40,000 | ₹3,00,000 |
| Tax-free HRA | ₹2,40,000 | ₹3,00,000 |
That is ₹60,000 more tax-free, which saves about ₹18,720 a year in the 30% slab, or about ₹12,480 in the 20% slab (including cess).
Check your own HRA
The catch: only in the old tax regime
HRA exemption is available only if you choose the old tax regime. The new regime has lower slabs but allows almost no exemptions, and for most salaries up to about ₹15–20 lakh it still works out cheaper overall. The bigger HRA exemption may tip the balance towards the old regime for people who pay high rent and claim other deductions such as 80C, home loan interest and NPS.
Put your HRA exemption into the income tax calculator to compare both regimes for your salary.
Documents you need
- Rent receipts or a rental agreement.
- Your landlord’s PAN if the rent is more than ₹1 lakh a year.
- Submit them to your employer on time so less tax is deducted each month. If you miss the deadline, you can still claim the exemption when filing your return.
Common questions
My office is in Bengaluru but I live in a nearby town. Which rate applies? The rate depends on where you live (where the rented house is), not where your office is.
Can I claim HRA if I pay rent to my parents? Yes, if you genuinely pay rent to a parent who owns the house and they declare it as income. Rent paid to a spouse does not qualify.
Does this apply to last year’s return? No. The 8-city list applies from tax year 2026-27 (April 2026 onwards). Returns for earlier years use the old four-city list.
See how HRA and your regime choice affect your monthly pay with the salary calculator.
This article is for general information and education, not financial, tax or investment advice. Rules and rates change; check official sources or consult a qualified professional before acting. See our disclaimer.