Kritika 
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A big announcement for salary professionals in India’s tech and business capital. The 50% Rent Rule, which was earlier applicable just to four major cities of Delhi, Mumbai, Kolkata, and Chennai, has been officially expanded to incorporate Bengaluru, Hyderabad, Pune, and Ahmedabad, the four new cities. The 50% Rent Rule, earlier applicable only to four metro cities—Delhi, Mumbai, Kolkata, Chennai—has now been expanded to include the four new cities Bengaluru, Hyderabad, Pune, and Ahmedabad. This could provide substantial additional rent relief to those who live in these cities and pay rent, from the FY 2026-27.
What Does the 50% Rent Rule Mean?
As per the HRA tax exemption formula, the deduction allowed is the minimum of the following three amounts:
- The actual HRA that your employer provides you with
- The percentage of your base salary is 40% or 50%, depending on the city.
- The actual rent paid minus 10% of your basic salary
The 50% Rent Rule lets the employees working in the cities that are declared as designated cities, take 50% of the basic salary as the rent calculation base instead of 40%. The higher the percentage, the more house rent allowance exemption you can claim and the less the income tax on your overall income.
Four cities have been qualified until now. It has just doubled, but that list has just doubled.
What Cities Qualify for 50% HRA Exemption?
HRA tax rules are now available for the metro city to eight cities:
| City | HRA Exemption Rate |
| Delhi, Mumbai, Kolkata, Chennai | 50% (existing) |
| Bengaluru, Hyderabad, Pune, Ahmedabad | 50% (new from April 1, 2026) |
| All other cities | 40% |
It’s a radical change for Bengaluru rent tax exemption and Hyderabad HRA rules, where rental costs have long surpassed the 40% limit, thus leaving the employees with an underpayment on their housing bills.
How to Claim HRA Exemption Under the New Rules
In the new rules, to receive the exemption for the HRA, you must meet the following criteria:
To take advantage of the 50 per cent HRA exemption rule, employees must be on the old tax regime — the exemption is not available under the new tax regime. What you have to do:
- Pay monthly rent receipts. The rent that you are supposed to pay ideally should also cover at least 50% of your basic salary, which will generate the maximum rent allowance deduction as per the HRA calculation norms 2026.
- Provide a rental agreement. For preparing the compliance documents, a proper rental agreement with the receipts issued by your organization needs to be maintained.
- It is important for landlords to provide their PAN number when the rent that is earned from the tenant exceeds ₹1,00,000/-. This is a mandatory condition of the rent receipt tax exemption, and if PAN is not submitted, then the exemption would be denied.
- Notify your HR/payroll department. Not all companies have yet been able to adjust their systems to the new, expanded 50% Rent Rule. Please request your payroll or HR team to verify that your city classification is being used for FY 2026-27 as it was before.
A Case Study: Pune Rent Tax Deduction
Suppose you have a basic salary of ₹50,000 per month, HRA of ₹20,000 per month and your actual rent is ₹22,000 per month, then you will be eligible for an exemption of ₹20,000 per month on your rent. The 50% Rent Rule exemption is the smallest of:
- Actual HRA: ₹20,000
- 50% of basic: ₹25,000
- Rent minus 10% of basic: ₹22,000 − ₹5,000 = ₹17,000
The ₹17,000 rent tax deduction per month (₹2,04,000 per year) will now be deducted from your taxable income directly.
Why It Matters For Salary Tax Saving In 2026
The nearly 40 per cent limit had turned the accommodation burden on the shoulders of employees in Bengaluru, Hyderabad and Pune, where the cost of housing is among the highest in the country. One of the best salary tax saving tips that Indian salaried workers have had in recent years is the extension of the 50% Rent Rule, and with the employee rent tax benefits, it couldn’t be a better time.
Ensure that your rent receipts and agreements are in order, as well as your PAN information. The earlier your employer processes the update, the earlier the rent tax exemption in India starts for FY 2026-27.
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