REGULATORY · COMPETITIVE · INDIA
CBDT raises HRA exemption to 50%
Change
The Central Board of Direct Taxes notified income-tax rules, effective April 1, 2026, increasing the house rent allowance (HRA) exemption to 50% of salary for salaried employees in Hyderabad.
Why it matters
The Central Board of Direct Taxes issued rules notified on March 20, 2026 and effective April 1, 2026 that set the HRA exemption at 50% of salary for Hyderabad. Hyderabad, Bengaluru, Pune and Ahmedabad join Mumbai, Delhi, Kolkata and Chennai as urban agglomerations eligible for the 50% HRA exemption. Employees in all other locations continue to qualify for a 40% HRA exemption. The rules change the calculation basis for HRA tax exemption in the listed cities.
Implications
- · Taxable-income calculations for salaried employees in the listed urban agglomerations will reflect a 50% HRA exemption instead of the previous 40% rate.
- · Employer payroll and tax-withholding computations for affected employees will apply the higher exemption from the effective date.
- · Tax filings and annual income-tax computations for the fiscal period beginning April 1, 2026 will incorporate the revised HRA treatment.
Who is affected
- · Salaried employees in affected urban agglomerations
- · Employer payroll and HR teams
- · Corporate tax and payroll compliance teams
What to watch
- · Effective date: April 1, 2026
Source
Topics
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