HRA Exemption 2026: Is Bengaluru 50% or 40%? The Answer Depends on Which Year You Are Filing For
TL;DR
- Bengaluru, Pune, Hyderabad, and Ahmedabad ARE now 50% metro cities — but only from Tax Year 2026-27 (income from April 1, 2026)
- For ITR filed right now (AY 2026-27, FY 2025-26): these four cities are still 40%
- Using 50% for the current filing overstates HRA exemption — may trigger a notice or additional tax demand
- HRA exemption is the LOWEST of three conditions — the 50% rule is just one of them
- HRA is NOT available under the New Tax Regime — choosing New Regime means full HRA is taxable
- New Form 124 replaces Form 12BB — now requires landlord relationship disclosure
The Timing Mistake That Can Cost You
If you live in Bengaluru, Pune, Hyderabad, or Ahmedabad and claim HRA, you have probably seen the headline: these cities are now eligible for the higher 50% HRA exemption limit.
That news is real. But the timing is where many salaried employees make a costly mistake.
For the ITR you are filing now for FY 2025-26 / AY 2026-27, Bengaluru, Pune, Hyderabad, and Ahmedabad should still be treated as 40% cities. The expanded 50% metro list applies from Tax Year 2026-27 — income earned from April 1, 2026 onwards, not the income you earned between April 2025 and March 2026.
The practical answer is simple:
Current ITR filing (FY 2025-26): use 40% for Bengaluru, Pune, Hyderabad, Ahmedabad. Next year's filing (FY 2026-27): use 50% for these cities.
This matters because some employers have already updated their payroll systems to 50% after reading the Income Tax Rules 2026 announcement. That is correct for payroll from April 2026 onwards. It is not correct applied backward to FY 2025-26 income. If your Form 16 reflects 50% for Bengaluru for the current year, do not use that figure blindly in your ITR.
The Timeline — Which Rule Applies When
Current ITR filing: AY 2026-27 / FY 2025-26
| City | HRA Percentage |
|---|---|
| Delhi, Mumbai, Kolkata, Chennai | 50% |
| Bengaluru, Pune, Hyderabad, Ahmedabad | 40% |
| All other cities | 40% |
From Tax Year 2026-27 onwards (next year's filing)
| City | HRA Percentage |
|---|---|
| Delhi, Mumbai, Kolkata, Chennai | 50% |
| Bengaluru, Pune, Hyderabad, Ahmedabad | 50% — NEW |
| All other cities | 40% |
The Income Tax Rules 2026, specifically Rule 279 replacing old Rule 2A, expanded the metro list. Multiple sources including Mercans Global Payroll and Upstox have confirmed this expansion applies from April 1, 2026. The Economic Times specifically reported that the good news for salaried employees in these cities — higher HRA exemption — comes with the new rules notified for income tax. But all confirm the same effective date: April 1, 2026 onwards.
For income earned April 2025 to March 2026, you are filing under the old classification. Do not cross that line.
The HRA Formula — How It Actually Works
HRA exemption is not simply 40% or 50% of salary. That is only one part of the formula. The exempt amount is the lowest of three conditions:
Condition 1: Actual HRA received from employer
Condition 2: 50% of salary if metro city, 40% of salary if non-metro (Salary = Basic + DA + Commission if fixed % of turnover)
Condition 3: Actual rent paid minus 10% of salary
The lowest of these three is your HRA exemption. This is why the metro classification change does not automatically guarantee higher exemption for everyone.
Worked example — Bengaluru employee, current ITR (AY 2026-27)
| Amount | |
|---|---|
| Basic salary (monthly) | ₹60,000 |
| Annual basic salary | ₹7,20,000 |
| HRA received (annual) | ₹2,88,000 |
| Rent paid (annual) | ₹2,64,000 |
| City | Bengaluru (40% for current filing) |
Three conditions:
| Condition | Calculation | Amount |
|---|---|---|
| Actual HRA received | ₹24,000 × 12 | ₹2,88,000 |
| 40% of salary | 40% × ₹7,20,000 | ₹2,88,000 |
| Rent paid minus 10% of salary | ₹2,64,000 − ₹72,000 | ₹1,92,000 |
HRA exemption = ₹1,92,000 (lowest of the three)
Same employee, next year (50% applies to Bengaluru)
| Condition | Calculation | Amount |
|---|---|---|
| Actual HRA received | ₹2,88,000 | ₹2,88,000 |
| 50% of salary | 50% × ₹7,20,000 | ₹3,60,000 |
| Rent paid minus 10% of salary | ₹2,64,000 − ₹72,000 | ₹1,92,000 |
HRA exemption = ₹1,92,000 — exactly the same.
The 50% city classification did not increase the exemption because Condition 3 — rent paid minus 10% of salary — was already the binding constraint. This is the case for many employees. The 50% change helps most when rent is high enough relative to salary that Condition 2 was previously the limiting factor.
HRA Under the New Tax Regime — Important Warning
HRA exemption is not available under the New Tax Regime. Full stop.
If you choose the New Regime, your entire HRA is treated as taxable salary. The 40% vs 50% city debate is irrelevant because there is no HRA exemption to claim.
This is one of the most consequential decisions for salaried employees filing in 2026. The New Regime offers lower slab rates but removes HRA, 80C, home loan interest, medical insurance deductions, and most other exemptions.
For employees paying significant rent in metro cities, the Old Regime with HRA exemption often delivers lower total tax despite higher slab rates. For employees with minimal deductions, the New Regime may be simpler and cheaper.
The only reliable way to decide is to calculate both. Use the PlanivestFin Salary Calculator to enter your actual numbers — basic salary, HRA received, rent paid, city, and deductions — and compare your tax liability under both regimes side by side.
The Old vs New Tax Regime guide has worked examples at ₹8L, ₹12L, ₹18L, and ₹25L salary levels that show exactly where the break-even point falls.
The New Landlord Disclosure Requirement
Form 12BB has been replaced by Form 124 under the Income Tax Rules 2026. This is the employee declaration form submitted to your employer for computing HRA and TDS on salary.
The key new requirement: disclosure of your relationship with your landlord. If annual rent exceeds ₹1 lakh, you must now declare whether the landlord is a relative — spouse, parent, sibling, or child.
This matters because the IT department's risk management system can now cross-reference your HRA claim with whether the landlord has declared the same amount as rental income in their own ITR. If you claim ₹2,64,000 annual rent paid to your father but your father did not declare ₹2,64,000 rental income, the system flags it.
Rent paid to parents is valid — but only if it is genuine. A safe rent-to-parents arrangement needs:
- A formal written rent agreement at market rate
- Rent paid by bank transfer, not cash
- Landlord PAN documented
- Rent receipts maintained
- Parent declaring the rental income in their own ITR
Do not pay cash, skip documentation, and then claim large HRA. The visibility of these transactions has increased significantly in 2026.
What If Your Employer Already Computed 50% for Bengaluru
Some payroll teams updated their systems to 50% after the Income Tax Rules 2026 announcement. For payroll from April 2026 onwards, that is correct. For FY 2025-26, it is wrong.
If your Form 16 for FY 2025-26 shows HRA exemption at 50% for Bengaluru, Pune, Hyderabad, or Ahmedabad, you need to recompute it at 40%.
What happens if you file using the employer's incorrect 50% figure:
- Your exempt HRA may be overstated
- Taxable salary understated
- TDS may be lower than legally required
- You may owe additional tax when filing, plus interest under Section 234B
Your steps: check the HRA exemption figure in Form 16, recalculate at 40% for FY 2025-26, compare against what the employer allowed, and declare the corrected taxable salary in your ITR. If the shortfall is significant, pay the additional tax before July 31 to avoid interest.
Planning for Next Year — The Real 50% Benefit
For income earned from April 1, 2026 onwards, Bengaluru, Pune, Hyderabad, and Ahmedabad employees can legitimately use 50%.
This genuinely helps employees where Condition 2 (the salary percentage condition) was previously the binding constraint. Employees with high salary, high HRA, and high rent relative to salary will see the most benefit. Employees where Condition 3 is the binding constraint will see little or no change.
To understand your actual benefit, recalculate all three conditions using 50% and identify which is now lowest. If Condition 3 is still lowest, the metro upgrade makes no difference to your exemption. If Condition 2 was lowest at 40% and is now higher at 50%, your exemption increases.
Common Mistakes to Avoid
Using 50% for Bengaluru in the current ITR: The most consequential mistake. Use 40% for FY 2025-26 filing.
Choosing New Regime and trying to claim HRA: Not possible. HRA exemption requires Old Regime.
Paying rent to parents without documentation: Valid arrangement, invalid without proper records, bank transfers, and parental rental income declaration.
Copying Form 16 without checking the city percentage: If your employer used 50% incorrectly, correct it yourself in the ITR.
Assuming 50% always means higher exemption: The lowest-of-three formula means the city percentage is only one factor. Check all three conditions.
Frequently Asked Questions
Is Bengaluru 50% or 40% for AY 2026-27?
For the current filing for FY 2025-26 / AY 2026-27, Bengaluru is a 40% city. The 50% benefit applies from Tax Year 2026-27 — income earned from April 1, 2026 onwards.
Are Pune, Hyderabad, and Ahmedabad also 40% for current filing?
Yes. All four newly added cities — Bengaluru, Pune, Hyderabad, Ahmedabad — remain 40% for the FY 2025-26 filing. They move to 50% from Tax Year 2026-27 onwards.
Can I claim HRA under the New Tax Regime?
No. HRA exemption is not available under the New Tax Regime. If you want to claim HRA, you must file under the Old Regime.
What is Form 124?
Form 124 is the employee declaration form submitted to the employer for claiming salary-related tax benefits including HRA. It replaces the older Form 12BB and adds new requirements including landlord relationship disclosure. The Income Tax Department's own FAQ confirms Form 124 is used for claiming deductions, exemptions, and allowances while computing taxable salary and TDS.
I pay rent to my parents — is my HRA claim valid?
It can be valid if the arrangement is genuine — formal rent agreement, bank transfer payments, landlord PAN on record, and parents declaring the rental income in their own ITR. Cash payments without documentation create problems.
My employer computed 50% HRA for Bengaluru in Form 16. What should I do?
Recalculate HRA at 40% for FY 2025-26. If the employer allowed excess exemption, your taxable income increases in your ITR filing. Pay any additional tax before the July 31 deadline. If the amount is significant, consult a chartered accountant before filing.
Related Reading
- Old vs New Tax Regime 2026-27 — Which One Should You Choose? — The regime choice directly determines whether HRA exemption is available to you
- ITR Filing 2026-27: Deadline Is July 31 for Salaried Employees — Complete checklist including AIS reconciliation before filing
- Salary Tax Calculator 2026-27 — Zero Tax up to ₹12.75 Lakh — How the new slabs interact with HRA and other deductions
Last reviewed: May 2026 — PlanivestFin Research Team
Disclaimer: This article is for informational purposes only and does not constitute tax advice. HRA rules, city classifications, and form requirements are subject to CBDT notification. Verify current rules at incometax.gov.in before filing. Consult a chartered accountant if your salary structure, rent arrangement, or tax regime choice is complex.