Income Tax Rules 2026: These cities get higher HRA tax exemption from April; check full list

Starting April 1, 2026, new income tax rules will expand the list of cities that qualify for higher House Rent Allowance (HRA) tax exemption. Salaried employees who live in these additional cities, going beyond the tradional four, can now take advantage of larger deductions. This change can lower your taxable income and increase your take-home savings if you live in these eligible locations.

Earlier, only Mumbai, Delhi, Chennai, and Kolkata qualified for 50% HRA exemption (of basic salary) . Now, Hyderabad, Pune, Ahmedabad, and Bengaluru are also included. If you live in any of these 8 cities, you can claim higher tax relief compared to other locations.

Your HRA tax exemption is the lowest of three amounts: actual HRA received, rent paid minus 10% of salary, or 50% (metro cities) / 40% (non-metro cities) of salary. Understanding this formula helps you estimate how much tax you can legally save.

These updated HRA rules come into effect from FY 2026–27, starting April 1, 2026. This means you will see the impact when filing your Income Tax Return (ITR) by July 31, 2027. Planning your rent and documents early can help avoid last-minute issues.

A key change is mandatory disclosure of your relationship with your landlord in Form 124. This applies especially if you are paying rent to family members. The aim is to improve transparency and prevent misuse of HRA claims.

You can still claim HRA if you pay rent to parents or relatives. However, the arrangement must be genuine. Proper documentation, actual money transfer, and landlord reporting rental income are essential. Tax authorities may verify such claims more closely under the new rules.

To avoid tax trouble, keep a valid rent agreement, pay rent via bank transfer (not cash), and ensure your landlord reports rental income in their tax return. Also, correctly disclose your relationship in the required form. These steps make your claim strong and compliant.

The new rules bring both benefits and stricter compliance. While more people can now claim higher HRA exemption, documentation and disclosure requirements have increased. If you plan carefully and follow the rules, you can maximise tax savings without risking penalties or scrutiny.