Published 9 May 2026
Is Your City on the List?
The House Rent Allowance exemption under section 10(13A) of the Income-tax Act, 1961 -- one of the most-used carve-outs in Indian salary tax -- has historically distinguished four 'metros' (Delhi, Mumbai, Kolkata, Chennai) at 50% of basic salary, with everywhere else at 40%. With Indian urbanisation accelerating, the question of which other large cities should qualify for the higher 50% rate is debated. Here is where the law stands today, what has been changing, and what practitioners should advise.
The Statutory Framework
Section 10(13A) of the Income-tax Act, 1961 read with Rule 2A of the Income-tax Rules, 1962 prescribes the House Rent Allowance exemption. The exempt amount is the LEAST of three legs:
- Actual House Rent Allowance received.
- 50% of basic salary if employee resides in Mumbai, Delhi, Kolkata, or Chennai (FOUR metros). 40% if residing elsewhere.
- Actual rent paid less 10% of basic salary.
Section 11(13A) of the Income-tax Act, 2025 preserves this framework substantively. The four-metro classification has roots in the original notification of 1962, when these were the only cities with population exceeding 25 lakhs. 'Salary' for House Rent Allowance purposes (per Rule 2A) means basic salary plus dearness allowance forming part of retirement benefit plus commission as a percentage of turnover; it excludes House Rent Allowance, Leave Travel Allowance, special allowances and the like.
Why the 'Eight Cities' Discussion?
Bengaluru, Hyderabad, Pune, Ahmedabad, Surat, Jaipur, Lucknow -- all now exceed 40 lakh population (per the 2011 Census plus projections). These 'second-tier metros' have rental costs comparable to or exceeding Kolkata or Chennai, yet the House Rent Allowance exemption is capped at 40% of basic salary for residents.
Industry advocacy from the Confederation of Indian Industry, Federation of Indian Chambers of Commerce and Industry, and employer associations has pushed for inclusion in the metro list, but no statutory amendment. Rule 3 (perquisite valuation) was amended by Finance Act, 2023 to reset population thresholds (40 lakh / 15 lakh / under 15 lakh) for accommodation-perquisite valuation -- but this is for the EMPLOYER-side perquisite calculation, not for the section 10(13A) House Rent Allowance exemption on the EMPLOYEE side. The two should not be conflated.
Current Position -- Only Four Metros for House Rent Allowance
Cities at 50% Rate -- as of Tax Year 2025-26 Delhi (and the National Capital Territory area) Mumbai (within Greater Mumbai Municipal Corporation limits) Kolkata (Kolkata Municipal Corporation area) Chennai (Chennai Municipal Corporation area) |
Cities at 40% Rate -- All Others Bengaluru (despite over 80 lakh population) Hyderabad (despite over 70 lakh population) Pune (despite over 65 lakh population) Ahmedabad (despite over 60 lakh population) Surat, Jaipur, Lucknow, and all other tier-2 / tier-3 cities |
As of financial year 2025-26 (assessment year 2026-27), the legal position is unchanged. Despite media reports and industry advocacy to extend the list, no notification or Finance Act amendment has been issued expanding the metro list for section 10(13A). Practitioners should advise clients on the 40% rate for non-metro residents while monitoring for future amendments. The Income-tax Act, 2025, by virtue of section 11(13A), preserves the four-metro framework.
What 'Resident in Metro' Means
The 50% / 40% test is based on the city where the employee RESIDES, not where the employer is located, and not where rent is paid. Worked illustrations:
Scenario | Employer City | Residence City | Rate |
|---|---|---|---|
Delhi salary, Gurgaon residence | Delhi | Gurgaon | 40% (Gurgaon not a metro) |
Mumbai office, Thane residence | Mumbai | Thane | 40% (Thane outside Greater Mumbai) |
Bengaluru salary, Bengaluru residence | Bengaluru | Bengaluru | 40% |
Hyderabad office, Mumbai residence | Hyderabad | Mumbai | 50% (residence in Mumbai) |
Practitioner Compliance Notes
- Document landlord Permanent Account Number if annual rent exceeds INR 1 lakh (Rule 26C). Without landlord Permanent Account Number, the Assessing Officer may disallow the House Rent Allowance exemption.
- Form 60 substitute if landlord has no Permanent Account Number -- bank account verification supports.
- Joint rental: each co-tenant claims proportionate House Rent Allowance based on rent share.
- Property in own name plus claiming House Rent Allowance: not permitted (own-occupied plus House Rent Allowance is contradictory). Exception: if employee has a property in own city but resides in another city for work (rented elsewhere), House Rent Allowance is available for the rented residence.
- Rent to relatives: scrutiny by the Assessing Officer -- ensure documented banking trail plus reasonable rent at market rates.
- Switch to new regime: House Rent Allowance exemption is NOT available in the new regime -- compute opportunity cost annually.
- Multi-employer scenarios: House Rent Allowance from each employer assessed against rent paid; document the basis for proration.
Key Takeaways
- Section 10(13A) House Rent Allowance: 50% only for Delhi / Mumbai / Kolkata / Chennai; 40% elsewhere.
- Bengaluru / Hyderabad / Pune / Ahmedabad NOT yet in the 50% list -- despite populations over 40 lakhs.
- Rule 3 (perquisite) reset thresholds in Finance Act, 2023 -- separate from the House Rent Allowance framework.
- Landlord Permanent Account Number mandatory for rent exceeding INR 1 lakh annually (Rule 26C).
- House Rent Allowance exemption is OLD-regime exclusive; not available in the default new regime.
- Test based on city of residence, not city of employment.
- Income-tax Act, 2025 section 11(13A) preserves the four-metro framework.
Disclaimer: This article is for general information only. It does not constitute tax / legal advice. Please consult a qualified Chartered Accountant or tax practitioner for advice specific to your circumstances. The legal position is current as of FA 2024 (No. 2) / FA 2025; subsequent amendments and CBDT notifications may modify the position.