Bengaluru, Hyderabad, Pune, Ahmedabad Salaried Class Set For Secret Pay Hike?

A major income tax shift is set to hit in just two days, expanding higher House Rent Allowance (HRA) exemptions beyond the traditional metros to cities such as Hyderabad, Pune, Ahmedabad and Bengaluru, potentially lifting take home pay for thousands of salaried professionals.

From April 1, the 50% HRA exemption cap, earlier limited to Delhi, Mumbai, Chennai and Kolkata, will apply to these fast growing urban hubs, where rents have surged in recent years. 

The move directly addresses a long standing mismatch between rising housing costs and lower tax relief thresholds. 

Bigger paychecks for high rent earners

The rule change could significantly benefit employees whose HRA structures already hover near half their basic salary. "In many cases, individuals had the capacity to claim a higher exemption but were restricted by the lower threshold; this change now allows them to utilise their eligible HRA,” a tax expert told NDTV.

The exemption remains calculated as the lowest of three factors, actual HRA received, rent paid minus 10% of salary, or 50% or 40% of salary depending on city classification.

Not for everyone and only under old regime

The benefit, however, is tightly targeted. It applies only under the old tax regime and primarily helps mid to high income earners paying substantial rent.

Tax experts say it benefits employees whose HRA is structured near 50% of basic pay, with incremental exemptions of Rs 60,000 to Rs 1.2 lakh translating into meaningful savings.

Lower income taxpayers or those with minimal deductions may still find the new tax regime, offering lower rates and simpler compliance, more attractive.

Compliance gets stricter

The reform also comes with tighter reporting norms. Taxpayers must disclose landlord relationships and maintain proper documentation, especially when paying rent to family members. Authorities are expected to scrutinize claims more closely.

Choose wisely each year

Experts stress that taxpayers must run a break even analysis annually. Those with high rent and multiple deductions may gain from the old regime, while others could benefit from switching. 

Rule for HRA exemption under old tax regime:

You get tax exemption equal to the least of these three:

• Actual HRA you receive from your employer.
• 50% of your salary (basic + DA) if you live in a notified "metro" city, or 40% if you live in a non-metro.
• Actual rent paid minus 10% of your salary (basic + DA).

So the workflow is:

Take your annual basic + DA.

Compute:

• Actual HRA received in the year.
• 50% (or 40%) of basic + DA, depending on city.
• Rent paid for the year minus 10% of basic + DA.

Whichever of these three numbers is smallest is your HRA exemption; the balance HRA (if any) is taxable.