Salaried professionals living in India’s fast-growing urban hubs could soon see meaningful tax relief. The government has proposed expanding the list of cities eligible for a higher House Rent Allowance (HRA) exemption under the old tax regime, according to the Draft Income-tax Rules, 2026.
Under the proposed revision, the higher 50% exemption limit would be extended to Bengaluru, Hyderabad, Pune and Ahmedabad. If implemented, employees living in these eight major cities would be able to claim HRA exemption of up to half their salary, while the 40% limit would continue for the rest of the country.
At present, taxpayers residing in Mumbai, Delhi, Kolkata and Chennai can claim HRA exemption of up to 50% of their salary. Employees in all other cities are eligible for a 40% cap.
Who can avail HRA exemption?
Officials believe the revised structure would better reflect current urban realities, where high rental expenses are no longer limited to traditional metros. For employees who continue to opt for the old tax regime, the change could translate into a lower taxable income and higher take-home savings.
HRA exemption is available under Section 10(13A) of the Income Tax Act, but only for individuals filing under the old tax regime. The new tax regime, which offers lower tax rates, has removed most exemptions, including HRA.
Bid to modernise HRA provisions
The move reflects the government’s attempt to modernise HRA provisions in line with changing economic geography. Over the past decade, cities such as Bengaluru, Hyderabad and Pune have evolved into major technology, startup, manufacturing and services hubs, attracting a large salaried workforce.
This growth has also driven sharp increases in residential rents, often bringing housing costs closer to metro levels.
According to reports, the proposal could make the old regime more attractive for a segment of salaried taxpayers in high-rent cities, especially those paying significant monthly rent.