Govt plans 50% HRA boost for salaried employees in these cities - Will Bhubaneswar benefit?

The Central government has proposed to expand the list of cities that qualify for the higher House Rent Allowance (HRA) exemption under the old income-tax regime, a move that could result in meaningful increases in take-home pay for many government employees and other salaried workers.

Under the current tax rules, only four metropolitan centres- Mumbai, Delhi, Kolkata and Chennai- fall into the category where employees can claim HRA tax exemption up to 50% of their basic salary. Workers in all other cities are eligible for a lower HRA exemption of up to 40% of basic salary.

New Cities on Higher Exemption List

According to the Draft Income-Tax Rules, 2026, the government has proposed adding four major urban hubs to the list of cities eligible for the higher 50% HRA exemption- Bengaluru, Hyderabad, Pune, Ahmedabad. Unfortunately, Bhubaneswar is not on the list.

This change realigns tax benefits with current housing and rental costs in these fast-growing cities, which today rival the traditional metros in terms of living expenses and job opportunities.

Potential Salary Impact on Employees

For many central and state government employees, this expansion could lead to significant increases in net salary, especially for those posted in the newly added cities.

Under the old tax regime, the tax-free portion of HRA is calculated as the lowest of three amounts:

- Actual HRA received
- Rent paid minus 10% of salary
- 50% of salary (for eligible cities) or 40% (for others)

Because Bengaluru, Hyderabad, Pune and Ahmedabad may soon be treated like bigger metros under the draft rules, employees in these cities could see an increase in their HRA exemption limit by up to 10% of their basic salary compared with the current rule. This in turn, reduces taxable income and may boost take-home pay once the benefits are claimed while filing returns.

For example, an employee with a basic salary of Rs 50,000 per month (plus dearness allowance) could qualify for an additional Rs 5,000 per month in tax-exempt HRA under the expanded 50% limit, compared to the older 40% limit. This translates to Rs 60,000 more in exempt income annually, lowering overall tax liability if they pay rent and meet other conditions.

Who Benefits The Most:

While this proposal benefits all salaried workers paying rent in the expanded list of cities, government employees may see pronounced improvements in their net take-home pay, especially in high-cost rental markets where HRA forms a substantial part of the salary.

Public-sector units, government departments and state services with significant postings in Bengaluru, Hyderabad, Pune or Ahmedabad could see employees retaining a larger share of their salary after taxes. This would matter most for those in middle-income brackets who currently feel the pinch of rising rents in these urban hubs.

The expanded HRA exemption categories are part of the draft Income-Tax Rules, 2026, which are open for public feedback and could be finalised after stakeholder consultations. Once approved by the Finance Ministry and Parliament, these changes may come into effect from April 1, 2026.