Extending the 50% HRA exemption to cities such as Hyderabad, Pune, Ahmedabad, and Bengaluru can significantly boost take-home pay for salaried individuals, especially those previously limited by the 40% cap. higher rental expenses. However, since HRA benefits are available only under the old tax regime, taxpayers should carefully compare their tax liability under both the old and new regimes before making a choice.
Take the case of Priya Banik, a mid-level professional in Hyderabad, who pays high rent and receives a House Rent Allowance that is close to half her basic salary. With the expanded 50% HRA ceiling, she can now fully utilise her eligible HRA under the old tax regime, reducing her taxable income significantly. By combining HRA with other deductions, such as the standard deduction and 80C, careful planning helps her boost her take-home pay.
HRA exemption boost from April 1
Under Section 10(13A) of the Indian Income Tax Act, HRA received is partially exempt. Exemption is the least of the following: actual HRA received, rent paid minus 10% of salary, or 50% of salary (metro) / 40% (non-metro). Earlier, only Delhi, Mumbai, Chennai, and Kolkata had a 50% exemption. However, from April 1, the 50% limit will be extended to cities like Hyderabad, Pune, Ahmedabad, and Bengaluru.
The expansion of the 50% HRA exemption to cities such as Hyderabad, Pune, Ahmedabad, and Bengaluru has a direct impact on take-home income, particularly for taxpayers who were previously constrained by the 40% cap despite paying higher rents.
“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 and reduce taxable income fully,” says Deepesh Chheda, Partner, Dhruva Advisors.
Old vs new regime choice
However, it is important to understand that the expansion of the 50% HRA ceiling enlarges the tax-exempt envelope only where the percentage cap was the binding limb in the “least of three” computation.
“It primarily benefits mid- to high-income employees whose HRA is structured near 50% of basic pay and whose rent levels are substantial, with incremental exemptions of ₹60,000– ₹1.2 lakh translating into meaningful post-tax savings at higher slab rates,” says B. Shravanth Shanker, AOR, Managing Partner, B. Shanker Advocates.
The HRA tax benefit is available only under the old tax regime, so it’s important to compare your tax under both old and new regimes before deciding. To see if HRA helps reduce your tax, combine it with other deductions like the standard deduction. For maximum benefit, HRA should ideally be about 50 per cent of your basic pay, and your rent should be set so that neither the 10 per cent of salary rule nor your actual HRA limits your deduction. Proper planning ensures you get the full possible HRA tax relief.
“The reform also pushes taxpayers toward formal, well-documented rental arrangements under a stricter compliance framework. It is thus a targeted benefit for high-rent profiles rather than a universal tax reduction,” says Shanker.
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With these changes coming into effect, the choice between the old and new tax regimes becomes more nuanced. Employees who incur substantial rent and can maximise HRA benefits may still find the old regime more advantageous. “However, for individuals with lower rental outgo or limited deductions, the new regime’s lower tax rates and simplicity may outweigh HRA benefits. A careful, case-specific comparison factoring in salary structure, rent paid, and overall deductions is essential before making a decision,” says Chheda.
Choosing between the old and new tax regimes should be based on a break-even analysis, not just the higher HRA limit. To do this, calculate all deductions under the old regime—HRA, 80C, 80D, housing—and see if they outweigh the higher tax rates. The 50% HRA limit helps taxpayers in metro cities, especially if total deductions are around ₹3– ₹8 lakh. However, this benefit applies only if your deductions are genuine and well-documented; if not, the new regime may be better. The new regime is usually better for lower-income taxpayers because of the Section 87A rebate, and for higher-income taxpayers because of the surcharge cap.
In the ₹15– ₹30 lakh band, the outcome turns on the scale of rent and deductions. Non-tax considerations, such as compliance burden and audit exposure, also assume significance. The prudent approach is an annual comparative computation, treating regime selection as a flexible, year-specific decision.
Anagh Pal is a personal finance expert who writes on real estate, tax, insurance, mutual funds and other topics
