HRA Exemption Rules for FY 2025-26: Metro Cities and the New 8-City List
How much of your House Rent Allowance escapes tax depends on one thing above all: whether your city is on the 50% "metro" list or the 40% list. That list is changing - this filing season (FY 2025-26, AY 2026-27) still uses the classic four metros, while tax year 2026-27 brings an expanded eight-city list. This guide covers the exemption rules for both periods, plus the section 80GG alternative for those without HRA.
The least-of-three exemption rule
Section 10(13A) read with Rule 2A exempts the least of these three amounts, computed on salary meaning basic pay plus retirement-linked DA plus turnover commission (the full step-by-step method with examples is in the HRA calculation guide):
- Actual HRA received for the period;
- Rent paid minus 10% of salary;
- 50% of salary in a listed metro city, 40% of salary elsewhere.
The exemption requires rent to be actually paid for accommodation you occupy, and it is available only in the old tax regime. Check your own numbers in the HRA calculator.
Metro vs non-metro: FY 2025-26 (this filing season)
| City category | Salary limit | Cities |
|---|---|---|
| Metro (50%) | 50% of salary | Delhi, Mumbai, Kolkata, Chennai |
| Non-metro (40%) | 40% of salary | All other cities - including Bengaluru, Hyderabad, Pune, Ahmedabad, Gurgaon, Noida, Faridabad and Navi Mumbai |
Note that the rule follows municipal limits: Gurgaon, Noida and Navi Mumbai are 40% cities even though they adjoin Delhi and Mumbai.
The 8-city list from FY 2026-27 (tax year 2026-27)
With the Income-tax Act, 2025 and the Income-tax Rules, 2026 taking effect from 1 April 2026, the 50% limit is extended beyond the four classic metros. The change applies to salary earned from FY 2026-27 onwards - it does not apply to the FY 2025-26 return you are filing now.
| Period | 50% cities | 40% cities |
|---|---|---|
| Up to 31 March 2026 (FY 2025-26, AY 2026-27) | Delhi, Mumbai, Kolkata, Chennai | All other cities |
| From 1 April 2026 (tax year 2026-27) | Delhi, Mumbai, Kolkata, Chennai, Bengaluru, Hyderabad, Pune, Ahmedabad | All other cities |
Employees in the four newly added cities should update their FY 2026-27 payroll declarations so TDS reflects the higher 50% ceiling.
Worked examples
Same salary, Delhi vs Jaipur (FY 2025-26)
Basic Rs. 7,20,000, HRA Rs. 4,00,000, rent Rs. 35,000/month (Rs. 4,20,000). Limb 2: Rs. 4,20,000 - Rs. 72,000 = Rs. 3,48,000. Limb 3: Delhi 50% = Rs. 3,60,000; Jaipur 40% = Rs. 2,88,000. Exempt: Rs. 3,48,000 in Delhi but only Rs. 2,88,000 in Jaipur - a Rs. 60,000 difference purely due to the city list.
Hyderabad: this year vs next year
Basic Rs. 10,00,000, HRA Rs. 5,00,000, rent Rs. 45,000/month (Rs. 5,40,000). Limb 2: Rs. 4,40,000. FY 2025-26: limb 3 at 40% = Rs. 4,00,000, so Rs. 4,00,000 exempt. FY 2026-27: Hyderabad becomes a 50% city, limb 3 = Rs. 5,00,000, so Rs. 4,40,000 exempt - Rs. 40,000 more.
No HRA - section 80GG
A consultant-turned-employee gets no HRA; adjusted total income Rs. 6,00,000, rent Rs. 15,000/month (Rs. 1,80,000). 80GG deduction = least of Rs. 60,000; 25% of income = Rs. 1,50,000; rent minus 10% of income = Rs. 1,20,000. Deduction: Rs. 60,000 (old regime, Form 10BA filed).
Section 80GG: the alternative when there is no HRA
| Particulars | Section 10(13A) HRA exemption | Section 80GG deduction |
|---|---|---|
| Who | Salaried with HRA component | Salaried without HRA, or self-employed |
| Ceiling | Least-of-three (no fixed rupee cap) | Least of Rs. 5,000/month, 25% of adjusted total income, rent minus 10% of income |
| Form | Form 12BB to employer | Form 10BA with the return |
| House ownership bar | Cannot claim for a city where you occupy your own house | No house owned by you, spouse or minor child at the place of residence; no self-occupied house claimed elsewhere |
| Tax regime | Old regime only | Old regime only |
Conditions and paperwork that protect your claim
- Rent receipts and rent agreement for the whole claim period.
- Landlord's PAN where annual rent exceeds Rs. 1,00,000 (declaration if no PAN).
- TDS under section 194-IB where monthly rent exceeds Rs. 50,000.
- Bank or UPI payment trail - especially for rent paid to parents, which is valid only if genuine and reported in the parent's return.
- Old regime selected in the ITR; for the full eligibility and documents picture see the HRA overview guide.
Special situations worth knowing
- HRA and home loan together: permitted when you genuinely rent in your work city while owning (and servicing a loan on) a house elsewhere - both the 10(13A) exemption and section 24(b) interest can be claimed in the old regime.
- Two cities in one year: a mid-year transfer from a 40% city to a metro means period-wise computation, applying each city's limit to the months you actually lived there.
- Part-year rent: months in a company guest house or your own home are excluded; the formula runs only on the rent-paying months.
- Shared flats: each tenant claims only their own share of rent, supported by their own receipts or a split agreement.
Common mistakes
- Applying the 8-city list to the FY 2025-26 return. Bengaluru, Hyderabad, Pune and Ahmedabad are 40% cities for this filing season; the 50% rate starts with FY 2026-27 salary.
- Treating Gurgaon, Noida or Navi Mumbai as metros. The list goes by municipal limits, not metropolitan regions.
- Claiming both 10(13A) and 80GG. If you received HRA for any part of the year, 80GG is barred for that period.
- Skipping Form 10BA for 80GG. The deduction fails without it.
- Claiming the exemption in the new regime. Both 10(13A) and 80GG require the old regime - compare regimes first on the old vs new regime guide.
- Round-figure rent with no payment trail. Cash rent with no receipts or bank trail is the most common reason HRA claims fail in verification.
Frequently asked questions
What are the HRA exemption rules for FY 2025-26?
Exempt HRA is the least of actual HRA, rent minus 10% of salary, and 50%/40% of salary by city - old regime only, rent actually paid.
Which cities qualify for 50% in FY 2025-26?
Only Delhi, Mumbai, Kolkata and Chennai. Everywhere else is 40% for this year's return.
Which cities get 50% from FY 2026-27?
Eight cities: Delhi, Mumbai, Kolkata, Chennai, Bengaluru, Hyderabad, Pune and Ahmedabad - for salary earned from 1 April 2026.
Can I claim rent without receiving HRA?
Yes, under section 80GG: least of Rs. 60,000 a year, 25% of adjusted total income, and rent minus 10% of income, with Form 10BA and the house-ownership conditions.
Does the exemption work in the new regime?
No. Both the HRA exemption and 80GG need the old regime.
When is the landlord's PAN mandatory?
When annual rent exceeds Rs. 1,00,000; above Rs. 50,000 monthly rent, tenant TDS under 194-IB also applies.
Maximise your rent benefit this season
All India ITR's experts check your city category, pick between 10(13A) and 80GG, compare regimes and file your return with the highest legitimate exemption.
Related current ITR guides
More AY 2026-27 tax guides
Save tax: Home loan benefits · NPS (80CCD) · Donations (80G) · Education loan (80E) · Interest income (80TTA/80TTB) · Form 15G/15H · Capital gains exemptions (54/54F/54EC)
Investors and traders: F&O and intraday tax · ESOP and RSU tax · Share buyback tax · Foreign income and Schedule FA · Gift tax (56(2)(x)) · HUF taxation
Calculators and tools: Income tax calculator · Advance tax calculator · 80C tax-saving calculator · NPS calculator · Gratuity calculator · EPF calculator · Crypto tax calculator · HRA calculator
Filing and compliance: Section 87A rebate · Marginal relief · Form 10-IEA · PAN-Aadhaar link · AIS and TIS · ITR-U updated return · Discard ITR and condonation · TDS on rent and property · Income Tax Act 2025
Sources reviewed
- Income Tax Department: official House Rent Allowance calculator
- PIB, Ministry of Finance: Income-tax Act, 2025 and Income-tax Rules, 2026 in force from 1 April 2026
- Income Tax Department: Salaried individuals for AY 2026-27 - allowances, regimes and deductions
City classifications and limits shown are for FY 2025-26 (AY 2026-27) returns, with the FY 2026-27 change noted separately under the Income-tax Act, 2025 framework. Confirm the notified Income-tax Rules, 2026 city list before relying on it for payroll declarations.
