Quick answer: House rent allowance (HRA) is the part of salary paid towards an employee’s rented home. Under the old tax regime, part of it is exempt: the least of actual HRA, rent minus 10% of salary, and 50% of salary in eight listed cities (40% elsewhere). Rule 279 of the Income-tax Rules, 2026 added Pune to that 50% list.
- The 50% cities are Mumbai, Delhi, Kolkata, Chennai, Bengaluru, Hyderabad, Pune and Ahmedabad.
- “Salary” for HRA means basic plus dearness allowance, if the terms of employment provide for it, and nothing else.
- Above ₹1,00,000 of yearly rent, the employee must give the landlord’s PAN in Form 124, formerly Form 12BB.
- Under the default new regime, HRA is fully taxable.
How is the HRA exemption calculated in 2026?
Take three numbers and use the smallest one.
Suppose a Pune engineer earns a yearly basic salary of ₹8,59,821, receives ₹4,29,911 as HRA and pays ₹40,000 a month in rent.
| Test | Amount |
|---|---|
| Actual HRA received | ₹4,29,911 |
| Rent paid minus 10% of basic (₹4,80,000 − ₹85,982) | ₹3,94,018 |
| 50% of basic, Pune | ₹4,29,910 |
| Exempt HRA (the least) | ₹3,94,018 |
Before the 2026 Rules, Pune sat in the 40% group. The cap then was ₹3,43,928, so the same employee now shelters ₹50,090 more.
KPMG’s flash alert on the final Rules covers the expanded list.
Is HRA worth claiming under the new tax regime?
No. Section 202 of the Income-tax Act, 2025 switches the HRA exemption off for anyone on the default regime. HRA is then taxed like special allowance.
Even under the old regime, the sums rarely work for this engineer.
With the HRA exemption, the ₹50,000 standard deduction and professional tax, old-regime tax is ₹2,02,215. New-regime tax on the same pay is ₹1,34,086.
So the old regime needs about ₹2,18,362 of further deductions, such as 80C (now section 123) and 80D (now section 126), just to break even. Few young engineers get there. Hence the default. Our page on the old vs new tax regime sets out the trade.
The old regime tends to win for someone with high rent, big insurance premiums and full 80C savings. For them, HRA still pulls real weight, often alongside leave travel allowance.
What paperwork does the employer need for HRA?
The employee declares the claim in Form 124, the successor to Form 12BB.
The Income Tax Department’s Form 124 FAQs list a rent agreement as support and the landlord’s PAN above ₹1,00,000 of yearly rent.
The 2026 Rules also ask the employee to disclose any relationship with the landlord. Family rentals now sit in plain view. Expect questions.
Collect proofs before the final quarter, or TDS can jump in January. Our guide to salary structure in India shows how HRA fits beside the other components.
How does Remunance handle HRA claims for your team?
Remunance collects each employee’s Form 124 declaration, rent receipts and landlord PAN, then applies the exemption in monthly TDS only for staff who choose the old regime. Proofs are checked before the year-end TDS run, which keeps the annual certificate clean. We have hired for clients across 34 Indian cities, Pune included. To check how your packages split basic and HRA, talk to an India payroll specialist.
What else do people ask about HRA exemption?
Is HRA exempt under the new tax regime?
No. Under the default regime, HRA is fully taxable. The exemption applies only if the employee opts for the old regime.
Can I claim HRA if I live in my own house?
No. The exemption needs rent actually paid for a home you occupy. HRA received while living in your own house is fully taxable.
Is Pune a metro city for HRA?
Yes, from tax year 2026-27. Rule 279 lists Pune among the eight cities where the cap is 50% of salary.