50% HRA Relief for Bengaluru, Pune, Hyderabad, Ahmedabad; Taxpayers Face Old vs New Regime Choice

Salaried individuals in Bengaluru, Pune, Hyderabad, and Ahmedabad will see a significant boost in their take-home pay as the House Rent Allowance (HRA) exemption rises to 50% of basic salary. Previously capped at 40% for these cities, the increase allows employees with high rental expenses to claim a larger deduction under the old tax regime. This change requires taxpayers to carefully evaluate whether sticking with the old regime or switching to the new one is more beneficial.

For example, professionals paying substantial rent and receiving HRA close to half of their basic salary can now fully utilize the expanded exemption. When combined with other deductions such as the standard deduction and Section 80C, careful planning can substantially reduce taxable income and increase net salary.

How the HRA Exemption Works

Under Section 10(13A) of the Income Tax Act, HRA is partially exempt based on the least of: actual HRA received, rent paid minus 10% of salary, or a set percentage of salary (50% for metro cities, 40% for non-metros). Until now, only Delhi, Mumbai, Chennai, and Kolkata qualified for the 50% exemption. From April 1, Bengaluru, Pune, Hyderabad, and Ahmedabad are included in this list, allowing many employees to claim higher exemptions than before.

This change mainly benefits mid- to high-income employees whose HRA forms a large portion of their salary and who pay significant rent. For such taxpayers, the incremental HRA exemption can range between ₹60,000 and ₹1.2 lakh, resulting in meaningful post-tax savings.

Choosing Between Old and New Tax Regimes

HRA benefits are available only under the old tax regime, so evaluating total tax liability under both regimes is essential. The decision should be based on a comprehensive comparison considering all deductions like HRA, standard deduction, 80C investments, 80D health insurance, and housing-related exemptions.

For maximum benefit, HRA should ideally be about 50% of basic pay, and rent should be structured so that neither the 10% salary rule nor the HRA ceiling limits the exemption. Well-documented and genuine expenses are critical, as these determine whether the old regime outperforms the new one.

Lower-income taxpayers may still find the new regime attractive due to the Section 87A rebate, while higher-income individuals could benefit from capped surcharges. Ultimately, the choice should be treated as flexible and revisited annually, considering changes in salary, rent, and deductions.

New Income Tax Framework: Income-tax Act, 2025

With the rollout of the Income-tax Act, 2025, starting April 1, 2026, many taxpayers are confused about which rules apply for filing their returns in 2026. Income earned in FY 2025-26 will still fall under the existing Income Tax Act, 1961, for filing in AY 2026-27. The new law will apply only to income from FY 2026-27 onwards.

Key changes notified by the Central Board of Direct Taxes (CBDT) include the introduction of a “tax year” replacing the current financial year, higher exemption limits for allowances such as children’s education, hostel expenses, meal benefits, and the increased HRA exemption for the newly added metro cities.

To assist taxpayers, the Income Tax Department has launched an interactive online tool allowing side-by-side comparison of provisions under the old and new Acts. Users can map Sections of the 1961 Act to their equivalents in the 2025 Act, compare rules directly, and navigate renumbered and reorganized provisions more easily.

Key FAQs About the Transition

• Objective of the Income-tax Act, 2025: The new Act streamlines the tax code, reduces compliance burdens, consolidates provisions, and makes statutory language more accessible. It aims to simplify voluntary compliance without imposing new taxes.
• Does the 2025 Act fully replace the 1961 Act? Yes, from April 1, 2026, but transitional provisions ensure ongoing proceedings under the old Act are not disrupted.
• Will tax liability increase? No, the focus is on clarity, simplicity, and modernization rather than raising taxes.