From April 1, 2026, the Central Board of Direct Taxes (CBDT) has made important changes in the ‘Income Tax Rules, 2026’ and has increased the scope of tax exemption available on House Rent Allowance (HRA). The benefit which till now was limited to only four metros, has now been extended to 8 cities. This means that your taxable income will reduce and the ‘take-home’ salary coming into your bank account every month will increase significantly.
Now 50% claim will be available in these 4 cities also
For decades, there was a rule that only employees living in traditional metros like Delhi, Mumbai, Kolkata and Chennai could claim 50 percent of their basic salary as HRA exemption. For the rest of the country, this limit was fixed at only 40 percent. But, the ground reality has changed with time. Keeping this in mind, the government has also included Bengaluru, Hyderabad, Pune and Ahmedabad in this special club of 50 percent. In fact, house rents in these new cities have increased tremendously in the last few years. Being an IT hub and a major business centre, the rental cost here has reached the same level as the old metros. This historic decision will go a long way in bridging the gap between the increasing burden of rent and old tax rules.
tax burden will be reduced
When you are able to show half of your basic salary as rent expense, your total taxable income will drop drastically. Lower tax burden will leave you with more cash to spend. Economic experts also believe that this additional money will help the middle class to fight inflation. Apart from this, with the increase in the spending power of the people, the rental housing market in the urban areas of these eight cities is also expected to get a new momentum.
‘Double bonanza’ for those choosing old tax system
The government has not limited its kindness only to HRA. If you file your income tax return under the old tax regime, then some more windows of relief have also been opened for you. Keeping in mind the future expenses of children, the limit of tax exemption on their education and hostel allowance has been increased. Along with this, employees have also been given tax relief on facilities like food coupons or free meals provided by the office. There is also good news for those parents who are planning to educate their children abroad or are going on a foreign trip. The rate of TCS deducted on such expenses has been reduced, which will make your budget for going abroad a little lighter.
HRA claim will be fully investigated
While on one hand the government has given many types of exemptions to the taxpayers, on the other hand it has also tightened the noose regarding following the rules. Now through advanced technology, HRA claims will be investigated at a very microscopic level. Its direct objective is to crack down on those who use fake or forged rent agreements and receipts to save tax.