Bengaluru, Hyderabad, Pune, Ahmedabad added to 50% HRA exemption list under draft I-T rules

I-T dept

• More metro cities added for 50% HRA exemption: Bengaluru, Hyderabad, Pune, Ahmedabad
• Employees in these cities can claim higher HRA under draft Income Tax Rules 2026
• Transport allowance for disabled employees in metros raised to Rs 15,000 plus DA

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Bengaluru, Hyderabad, Pune and Ahmedabad are set to be included in the list of Metro cities eligible for a higher House Rent Allowance (HRA) exemption of 50 percent under the old tax regime, according to the draft Income Tax Rules, 2026.

Currently, only Delhi, Mumbai, Kolkata and Chennai are classified as Metro cities for the purpose of HRA calculation, allowing salaried taxpayers in these cities to claim exemption of up to 50 percent of their salary. Other cities are capped at a 40 percent exemption.

Also, read: Union budget: Demand for Bengaluru's metro city status for HRA exemption gets louder

The proposed change has been introduced through Rule 279, which specifies limits for special allowances under Schedule III of the draft rules.

As per the draft, HRA exemption will continue to be calculated as the least of the actual allowance received, the amount by which rent paid exceeds 10 percent of salary, or a fixed percentage of salary based on the city of residence.

Under the revised table, Mumbai, Kolkata, Delhi, Chennai, Hyderabad, Pune, Ahmedabad and Bengaluru have been included in the metro cities category, making employees residing in these locations eligible for the 50 percent exemption limit. All other locations will continue to attract a 40 percent cap.

The draft rules also retain higher transport allowance limits for employees with disabilities. Employees who are blind, deaf and mute, or orthopaedically challenged and posted in notified metro cities will be eligible for a transport allowance of up to Rs 15,000 plus dearness allowance, compared with Rs 8,000 plus DA for those in other cities.

Reacting to the proposal, Bengaluru South MP Tejasvi Surya said the move would bring long-awaited parity for the city. “Big bonus for Bengaluru as, under the Draft Income Tax Rules 2026, it is included in the list of cities where the 50 percent HRA exemption benefit can be claimed. Once notified, this will enable Bengalureans to avail HRA benefits on par with Mumbai, Delhi, Kolkata and Chennai,” he wrote on X.

Surya added that he has been raising the issue across multiple forums, including Parliament, since 2022, and welcomed the inclusion of Hyderabad, Pune and Ahmedabad. He also said the higher transport allowance for employees with disabilities reinforces the government’s commitment to accessibility and inclusivity.