Mumbai, February 9: Taxpayers residing in major urban hubs like Bengaluru, Hyderabad, Pune, and Ahmedabad may soon see a significant reduction in their tax liability. The central government has proposed expanding the 50% House Rent Allowance (HRA) exemption to these four cities under the Draft Income-tax Rules, 2026. If approved, the move will bring these rapidly growing economic centers on par with traditional metros for tax purposes.

The proposal, released for stakeholder feedback on Saturday, seeks to modernise tax provisions to reflect the soaring rental costs in these cities. Currently, the maximum HRA exemption of 50% is restricted to the four "metro" cities: Mumbai, Delhi, Kolkata, and Chennai. Residents in all other Indian cities are currently capped at a 40% exemption. Income Tax Department Releases Draft Rules for 2025 Act, Seeks Public Feedback Till February 22.

Check List of Cities Upgraded to 50% HRA Exemption

Under the old tax regime, HRA exemption is calculated based on the lowest of three factors: the actual HRA received, the rent paid minus 10% of salary, or a percentage of the salary based on the city of residence.

  • Bengaluru

  • Hyderabad

  • Pune

  • Ahmedabad

Timeline and Applicability

The proposed changes are slated to take effect from April 1, 2026, for the next financial year. It is important to note that HRA tax benefits remain exclusive to the old tax regime. Taxpayers who have opted for the new tax regime will not be eligible for these exemptions, as that system does not allow for most deductions and allowances. New Income Tax Slabs and Rates for FY 2026-27: How Budget Affects Your Take-Home Salary.

The inclusion of these cities addresses a long-standing demand from corporate employees and tax experts. The government noted that the revision is necessary due to changing urban demographics and the escalating cost of living in these high-growth technology and industrial hubs.

While the inclusion of Bengaluru and Hyderabad has been widely welcomed, the draft has sparked debate on social media regarding other high-rent regions. Many taxpayers have expressed disappointment that Gurugram and Noida, key parts of the National Capital Region (NCR) with some of the highest rental rates in the country, were omitted from the 50% exemption category.

The government is currently inviting comments from stakeholders on these draft rules. Once the consultation period concludes, a final notification will be issued to codify the changes into the Income Tax Act.

TruLY Score by LatestLY
Rating:3

TruLY Score 3 – Believable; Needs Further Research | On a Trust Scale of 0-5 this article has scored 3 on LatestLY, this article appears believable but may need additional verification. It is based on reporting from news websites or verified journalists (Economic Times), but lacks supporting official confirmation. Readers are advised to treat the information as credible but continue to follow up for updates or confirmations

(The above story first appeared on LatestLY on Feb 09, 2026 08:07 PM IST. For more news and updates on politics, world, sports, entertainment and lifestyle, log on to our website latestly.com).