For over two decades, only four cities in India qualified for the 50% HRA exemption rate: Delhi, Mumbai, Kolkata, and Chennai. Every other city — including Bengaluru, Hyderabad, Pune, and Ahmedabad — was stuck at the 40% non-metro rate, regardless of how expensive rent actually was there. From FY 2026-27, that changes. Under the updated Income Tax Rules, those four cities now qualify for the 50% metro rate too, alongside the original four. If you’re a salaried employee paying rent in one of these eight cities, this is worth five minutes to understand before your next HRA declaration.
How HRA exemption is actually calculated
House Rent Allowance exemption under Section 10(13A) is the lowest of three numbers:
- Actual HRA received from your employer
- Rent paid minus 10% of basic salary
- 50% of basic salary (metro) or 40% of basic salary (non-metro)
Whichever of these three is smallest is what you get to exclude from taxable income. This only matters if you’ve opted for the old tax regime — HRA exemption isn’t available under the new regime at all, regardless of which city you live in.
The eight metro cities from FY 2026-27
| City | Rate | Since |
|---|---|---|
| Delhi | 50% | Always |
| Mumbai | 50% | Always |
| Kolkata | 50% | Always |
| Chennai | 50% | Always |
| Bengaluru | 50% | FY 2026-27 |
| Hyderabad | 50% | FY 2026-27 |
| Pune | 50% | FY 2026-27 |
| Ahmedabad | 50% | FY 2026-27 |
| Everywhere else | 40% | — |
Does this actually mean a bigger exemption for you?
Not automatically — and this is the part people get wrong. Since your exemption is the minimum of the three conditions, the higher 50% ceiling only helps if condition 3 was the one holding you back in the first place. If your actual HRA received, or rent paid minus 10% of basic, was already lower than 40% of your basic salary, moving to 50% changes nothing — you were never going to hit that ceiling anyway.
Where it does make a real difference: employees with a high basic salary relative to rent, or anyone whose rent paid minus 10% of basic already exceeded the old 40% cap. A software engineer in Bengaluru on ₹1,00,000/month basic, paying ₹50,000/month rent, would have been capped at 40% of basic (₹4,80,000/year) under the old rule — now the cap rises to 50% (₹6,00,000/year), which happens to match the rent-based condition exactly in this case, unlocking a meaningfully bigger exemption.
The only way to know which condition binds for your specific numbers is to run them.
One important gotcha: which financial year are you filing for?
This trips people up every year around July. If you’re filing your ITR for FY 2025-26 (due July 31, 2026), the old four-city rule still applies — Bengaluru, Hyderabad, Pune, and Ahmedabad are non-metro for that return. The eight-city rule only applies starting FY 2026-27, the year currently underway. Don’t apply this year’s rule to last year’s return.
Run your own numbers
The HRA Exemption Calculator has been updated with the new eight-city metro list for FY 2026-27. Plug in your basic salary, HRA received, and rent paid, and it’ll tell you exactly which of the three conditions is binding and what your exempt amount comes out to.
A couple of related calculators worth checking alongside this:
- Old vs New Regime Comparator — since HRA only matters under the old regime, this tells you whether claiming it is even worth it once you weigh it against the new regime’s lower slabs.
- Net Salary (In-Hand) Calculator — see your actual take-home pay once tax, HRA exemption, and other deductions are factored in.
Frequently asked questions
Which cities count as metro for HRA exemption now?
Eight, from FY 2026-27: Delhi, Mumbai, Kolkata, Chennai (unchanged), plus Bengaluru, Hyderabad, Pune, and Ahmedabad (new). Every other city uses the 40% non-metro rate.
Will I automatically get a bigger exemption if I live in one of the four new cities?
Only if the 50%-of-basic condition was the one limiting your exemption. If your actual HRA or rent-based condition was already lower, nothing changes for you.
Does this apply to my FY 2025-26 return, which I’m filing right now?
No. FY 2025-26 returns still use the old four-city rule. The eight-city rule applies from FY 2026-27 onward.
Can I claim HRA exemption under the new tax regime?
No — HRA exemption under Section 10(13A) is only available if you’ve opted for the old regime, regardless of which city you live in.
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