HRA Exemption for Tax Year 2026-27: The Eight 50% Cities

For tax year 2026-27, the part of your house rent allowance that is exempt is the least of three amounts: the HRA actually received, rent paid minus 10% of salary, and 50% or 40% of salary depending on where you live. Under rule 279 of the Income-tax Rules, 2026, the 50% rate applies in eight cities: Mumbai, Kolkata, Delhi, Chennai, Hyderabad, Pune, Ahmedabad and Bengaluru. Everywhere else it is 40%. The exemption is available only if you are on the old tax regime; the new regime does not allow it.

The exemption itself sits in Schedule III (Table: Sl. No. 11) of the Income-tax Act, 2025. Rule 279 supplies the formula and the city list. Many HRA calculators and articles still describe a four-city list, so check which list a tool is using before you rely on its figure for tax year 2026-27.

Who can claim it

Schedule III, Sl. No. 11 sets four conditions. Every one of them must be met:

1. The allowance is a special allowance from your employer, specifically granted to meet rent for residential accommodation you occupy.
2. The accommodation is not owned by you.
3. You actually pay rent for it.
4. The amount is limited to what the rules prescribe, having regard to where the accommodation is.

If your salary has no HRA component, this exemption does not apply. Section 134 (earlier 80GG), covered below, is the provision to look at instead.

The formula in rule 279

The exempt amount is the least of:

Two definitions in rule 279(2) decide most disputes over the numbers:

• “Salary” includes dearness allowance if the terms of employment provide for it, but excludes all other allowances and perquisites. For most people that means basic pay plus DA, not CTC.
• “Relevant period” is the period during the tax year in which you actually occupied the rented accommodation. If you moved in during October, the computation runs from October.

Worked example: a Pune employee

Priya is a salaried employee in Pune on the old regime for tax year 2026-27. She occupies the flat for the full year. Her figures:

• Basic pay: ₹60,000 a month (₹7,20,000 a year), with no DA
• HRA received: ₹30,000 a month (₹3,60,000 a year)
• Rent paid: ₹35,000 a month (₹4,20,000 a year)

Illustrative figures.

Had limb (c) been computed at 40%, it would be ₹2,88,000. The exemption would then fall to ₹2,88,000, and ₹60,000 more of her HRA would be taxable. At a 30% slab plus 4% cess, that is a difference of ₹18,720 in tax for the year. For people in Pune, Hyderabad, Ahmedabad and Bengaluru, using the correct city list can change the answer by this much.

The city does not always matter. If Priya paid ₹20,000 a month in rent, limb (b) would be ₹1,68,000. That is below both city limbs, so the exemption would be ₹1,68,000 wherever she lived.

The HRA and new-regime question

Section 202(2)(a)(i) computes new-regime income without the exemption in Schedule III (Table: Sl. No. 11). So under the default regime, all HRA received is taxable. For a salaried employee paying substantial rent, HRA can be a large part of what the old regime offers, so compare both regimes with your actual rent.

What your employer needs from you

Your employer applies the exemption when deducting TDS on salary. Under rule 205, you give the employer your claims in Form No. 124, the statement of claims used for salary TDS. For HRA, the rule requires:

• the landlord’s name and address;
• the landlord’s PAN, where the aggregate rent for the tax year exceeds ₹1,00,000;
• your relationship with the landlord, if any.

Keep rent receipts and bank records. If your employer did not apply the exemption, you can still claim it when filing your return, provided the conditions are met and you are on the old regime.

Paying rent without HRA: section 134

If you pay rent but receive no HRA, section 134 of the 2025 Act (earlier 80GG) allows a deduction for rent paid on accommodation for your own residence. The deduction is limited to the least of:

• rent paid minus 10% of total income;
• ₹5,000 a month;
• 25% of total income.

“Total income” here means income before allowing this deduction. Section 134(4) denies the deduction if you, your spouse or your minor child own residential accommodation where you ordinarily reside or work, or if you receive HRA covered by Schedule III, Sl. No. 11. Like HRA, this is a Chapter VIII deduction and is not available under the new regime.

Example. A consultant with ₹9,00,000 of total income pays ₹20,000 a month in rent:

• rent minus 10% of total income is ₹2,40,000 − ₹90,000 = ₹1,50,000;
• 25% of total income is ₹2,25,000;
• the monthly cap gives ₹60,000.

The deduction is ₹60,000.

Year labels matter

• This page covers tax year 2026-27 onwards, under the Income-tax Act, 2025 and the Income-tax Rules, 2026.
• Returns for FY 2025-26 (AY 2026-27) are governed by the Income-tax Act, 1961 and its rules, including the city list that applied then. Do not reuse this page’s city list for that year.

Where this fits

• Calculate your exemption: HRA exemption calculator
• A salary case: HRA exemption on ₹8 LPA in a metro
• Breaking down CTC: salary breakdown calculator
• Whether the old regime is worth it: new regime slabs for tax year 2026-27

Sources. Income-tax Act, 2025, Schedule III (Table: Sl. No. 11), sections 134 and 202, as published in the Gazette of India on 21 August 2025. Income-tax Rules, 2026, rules 205 and 279 and Form No. 124, notified 20 March 2026.