Budget 2026: Why Bengaluru, Pune, Hyderabad and Ahmedabad deserve metro-level HRA relief

With housing costs increasing across major and emerging urban centres, HRA continues to be a critical tool for easing the financial burden on India's salaried class.

As India’s urban landscape evolves, tax experts believe there is a growing need to reassess existing HRA provisions to ensure they reflect current living costs and offer equitable relief across cities.

"Inclusion of more developed cities into the metro category would provide much-needed financial relief to the earning class and help make the HRA exemption more equitable across urban India. It’s time to recognise the evolving urban landscape and adjust tax benefits to better reflect the reality of today’s growing cities," said Archit Gupta, Founder and CEO of ClearTax.

HRA exemption is currently capped at 50% of salary for metro cities and 40% for non-metros. However, rental costs in many Tier-2 cities are now similar to metros.

"Currently, metro cities like Delhi, Mumbai, Kolkata, and Chennai benefit from an HRA exemption of 50% of the basic salary (or actual rent paid, whichever is lower), while employees in non-metro cities are limited to 40%. With several growing urban centers not classified as metro cities, this distinction creates an imbalance. Recognising more cities as metro areas would ensure fairer treatment for employees across the country," said Archit Gupta.

“Cities like Bengaluru, Hyderabad, Pune, and Ahmedabad have seen sharp rent increases, but tax limits have not changed. Extending the 50% HRA exemption to such high-cost cities would better reflect current living expenses, ” noted Abhishek Soni, CEO & Co-founder, Tax2win.

House Rent Allowance (HRA)

HRA exemption: Impact of new labour code

Under the new labour code, the basic pay must be at least 50% of the total CTC. As a result, with higher basic salaries, the HRA exemption is likely to increase for many employees.

Assume that someone's salary is ₹50,000 per month

HRA received: ₹25,000 per month (Metro city)

Rent paid: ₹18,000 per month

Actual HRA received = ₹25,000

Rent paid = 18,000 10% of Salary– 5,000 = ₹13,000

50% of salary (for metro city) = 50% of 50,000 = ₹25,000

HRA Exemption = ₹13,000 per month

For a non-metro city, the percentage of salary used would be 40% instead of 50%.

Union Budget 2026