In a major relief for salaried individuals, the government has introduced updated rules under the Income Tax framework for FY 2026–27, bringing changes to House Rent Allowance (HRA) exemptions. While the new provisions expand tax-saving opportunities—especially for those living in metro cities—they also introduce stricter compliance requirements to improve transparency.

These revised norms will come into effect from April 1, 2026, and are expected to impact millions of taxpayers across urban India.

Expanded HRA Benefits: More Cities Included

Under the new rules, several major cities have been added to the higher exemption category, which allows employees to claim a larger HRA deduction.

Cities benefiting from this update include:

• Mumbai


• Delhi


• Kolkata


• Chennai


• Hyderabad


• Pune


• Ahmedabad


• Bengaluru

Residents in these cities can now claim HRA exemption up to 50% of their salary, compared to 40% in non-metro areas. This adjustment significantly boosts tax savings for urban employees facing higher rental costs.

New Condition: Declare Relationship With Landlord

One of the most important changes is a mandatory disclosure requirement.

If you claim HRA, you must now declare your relationship with the landlord. This applies even if:

• You are paying rent to parents


• The landlord is a relative


• The arrangement is informal

This information must be submitted via a prescribed form (such as Form 124). The move aims to curb misuse and ensure genuine claims.

How HRA Exemption Is Calculated

HRA tax exemption is determined based on the lowest of the following three values:

Actual HRA received from your employer

Rent paid minus 10% of your salary

50% of salary (metro cities) or 40% (non-metro cities)

The smallest of these three amounts is considered tax-exempt.

Example to Understand HRA Calculation

Let’s break it down with a simple case:

• Annual salary: ₹3,24,000


• Annual HRA received: ₹1,00,000


• Monthly rent: ₹10,000 (₹1,20,000 annually)

Now calculate:

• Rent paid minus 10% salary: ₹1,20,000 – ₹32,400 = ₹87,600


• 50% of salary (metro): ₹1,62,000


• HRA received: ₹1,00,000

👉 The lowest value is ₹87,600 — this becomes your tax-exempt HRA.
The remaining ₹12,400 will be taxable.

Paying Rent to Family Members? Follow These Rules

If you are paying rent to parents or relatives, you can still claim HRA—but with proper documentation:

• A valid rental agreement must be in place


• Rent should be paid via bank transfer (avoid cash)


• The landlord must declare rental income in their tax return

Failure to follow these steps could lead to rejection of your claim or tax scrutiny.

Why These Changes Matter

These updates strike a balance between higher tax savings and stricter compliance:

Benefits:

• Increased exemption limits for metro residents


• Greater tax-saving potential


• Recognition of rising urban living costs

New Responsibilities:

• Mandatory disclosure of landlord relationship


• Need for proper documentation


• Increased scrutiny to prevent false claims

Final Takeaway

The revised HRA rules under the new income tax regime offer a clear opportunity for salaried individuals to maximize tax savings, especially in high-rent cities. However, the added compliance requirements mean taxpayers must be more careful and transparent while filing claims.

Understanding these changes and maintaining proper documentation will help you fully benefit from HRA exemptions—without running into legal or tax complications.