HRA Exemption Rules for FY 2026-27: How Tenants Can Claim the Tax Benefit
From this financial year, four more cities — including Hyderabad — count as "metro" for HRA purposes. Here's exactly how the exemption is calculated, and what's changed.
House Rent Allowance (HRA) is usually the single largest tax-free component in a salaried employee's payslip — but only if you're structured correctly and paying rent. It's also one of the most misunderstood benefits, partly because the rules changed meaningfully for FY 2026-27.
- Why HRA exemption only exists under the old tax regime
- The exact least-of-three calculation formula
- The new 8-city metro list, with worked examples
HRA exemption only exists under the old regime
This is the single most important thing to get right: HRA exemption under Section 10(13A) is available only if you opt for the old tax regime. Since the new regime became the default, anyone who doesn't switch loses this exemption automatically — their entire HRA is added to taxable salary, even if they're genuinely paying rent.
The exemption formula
The exempt portion of HRA is the least of these three amounts:
- Actual HRA received from your employer
- Rent paid, minus 10% of (basic salary + dearness allowance)
- 50% of basic salary (metro cities) or 40% of basic salary (non-metro cities)
The metro city list just expanded to eight cities
For decades, only Delhi, Mumbai, Chennai, and Kolkata qualified for the 50% HRA exemption rate. From 1 April 2026, under the Income Tax Act, 2025, Bengaluru, Pune, Hyderabad, and Ahmedabad have been added to the metro list — bringing their cap up from 40% to 50%.
| Metro cities (50% of basic) | All other cities (40% of basic) |
|---|---|
| Delhi, Mumbai, Chennai, Kolkata (original) | Every city not listed as metro |
| Bengaluru, Pune, Hyderabad, Ahmedabad (added 1 Apr 2026) | — |
Worked examples
Hyderabad (now a metro city): Basic ₹60,000/month, HRA ₹30,000, rent ₹28,000. Actual HRA = ₹30,000; rent − 10% of basic = ₹22,000; 50% of basic = ₹30,000. Exempt HRA = ₹22,000/month — the smallest of the three.
A non-metro city: Basic ₹50,000/month, HRA ₹20,000, rent ₹18,000. Actual HRA = ₹20,000; rent − 10% of basic = ₹13,000; 40% of basic = ₹20,000. Exempt HRA = ₹13,000/month.
Documentation you'll need
- Rent receipts for each month you're claiming the exemption for.
- Your landlord's PAN — mandatory once annual rent exceeds ₹1,00,000.
- A valid rent agreement, especially for larger claims.
- Form 12BB — the declaration you submit to your employer for TDS purposes.
- HRA exemption is old-regime only — run the numbers both ways if you pay significant rent.
- Hyderabad, Bengaluru, Pune, and Ahmedabad now qualify for the 50% metro rate from 1 April 2026.
- Landlord PAN is mandatory once annual rent crosses ₹1,00,000.
Frequently asked questions
Can I claim HRA exemption if I pay rent to my parents?
Yes, provided the arrangement is genuine — actual rent is paid, an agreement exists, and the parent declares the rent as their own taxable income.
Is Hyderabad really a metro city now for HRA purposes?
Yes — Hyderabad, along with Bengaluru, Pune, and Ahmedabad, has been added to the 50% metro category from 1 April 2026.
Should I choose the old regime just to claim HRA?
It depends on your full deduction profile compared against the new regime's lower slab rates — calculate both scenarios with your actual numbers.