HRA Exemption in FY 2026-27: Which Cities Count as Metro Now

HRA is one of the few deductions that can make the old tax regime beat the new one for a salaried person, and the rules around which cities count as "metro" changed from 1 April 2026. If you rent in Bangalore, Hyderabad, Pune or Ahmedabad, the change can raise your exemption.

How the exemption is calculated

The exempt HRA for a year is the least of three amounts: the HRA you actually receive, the rent you pay minus 10% of your Basic salary, and 50% of Basic if you live in a metro city (40% otherwise). Whatever is left over is added to your taxable salary.

Which cities are metro in FY 2026-27

Until FY 2025-26 only Delhi, Mumbai, Kolkata and Chennai counted. From 1 April 2026 the 50% limit applies to eight cities: Delhi, Mumbai, Kolkata, Chennai, Bangalore (officially Bengaluru), Hyderabad, Pune and Ahmedabad. Gurgaon and Noida are still outside the list. We apply this list in our calculators and will revisit it when the rules change again.

A worked example

Say your Basic is ₹6,00,000 a year, you receive ₹3,00,000 HRA, and you pay ₹3,60,000 rent a year (₹30,000 a month). Rent minus 10% of Basic is ₹3,00,000. In a metro city the 50% limit is also ₹3,00,000, so the exemption is ₹3,00,000. In a non-metro city the 40% limit is ₹2,40,000, so the exemption is ₹2,40,000. Same salary and same rent, but ₹60,000 more exempt in a metro, which is worth up to about ₹18,700 in tax if you are in the 30% bracket.

When it matters most

The metro status only changes the answer when the 50% or 40% cap is the smallest of the three amounts. If your rent is low, the "rent minus 10% of Basic" term is what limits you and the city doesn't matter. And since HRA is available only in the old regime, check that the old regime comes out ahead overall before you plan around it.

This is general information, not tax advice. Check the current rules or ask a CA before filing.