Updated in April - 2026 | Subscribe to watch greytHR how-to video
As part of the Union Budget 2026 updates, the Indian government has introduced key income-tax changes effective April 2026, impacting payroll, covering expanded HRA metro city eligibility, revised perquisite valuation limits, updated allowances, and new statutory forms.
Prepare Now – Mandatory Changes from April 2026
The updates apply to all employers and employees and must be incorporated into payroll processing for tax year 2026–27.
The list of metro cities eligible for the higher 50% HRA exemption has been expanded from 4 cities to 8 cities.
| Category | Earlier | Revised(effective April 2026) |
|---|---|---|
| No. of Metro cities | 4 | 8 |
| Metro cities | Mumbai, Delhi, Kolkata, Chennai | Mumbai, Delhi, Kolkata, Chennai, Hyderabad, Pune, Bengaluru, Ahmedabad |
| HRA Exemption - Metro | 50% of salary | 50% of salary |
| HRA Exemption - Non Metro | 40% of salary | 40% of salary |
Note: The standard HRA exemption formula (least of actual HRA received, 50%/40% of salary, or rent paid minus 10% of salary) remains unchanged. Only the metro city list has been expanded. HRA exemption is applicable under the Old Tax Regime only.
The following perquisite limits have been revised.
| Perquisite | Revised Value (Effective April 2026) | Previous Value |
|---|---|---|
| Meal coupons/Food coupons | Tax-free up to ₹200 per meal | ₹50 per meal |
| Gifts (Non-cash) | Tax-free up to ₹15,000 per year | ₹5,000 per year |
| Children Education Allowance | ₹3,000 per month per child | ₹100 per month per child |
| Hostel Allowance | ₹9,000 per month per child | ₹300 per month per child |
| Company Car Lease (≤ 1.6L) | ₹5,000/month + ₹3,000 for driver | ₹1,800/month + ₹900 for driver |
| Company Car Lease (> 1.6L) | ₹7,000/month + ₹3,000 for driver | ₹2,400/month + ₹900 for driver |
| Parameter | Details |
|---|---|
| Taxability Basis | Difference between SBI lending rate and the actual interest rate charged. |
| Exemption - small loans | Loans up to ₹2 lakh |
| Exemption - Medical emergency | Loans taken for medical emergencies |
| Parameter | Earlier | Revised |
|---|---|---|
| Income Threshold for Tax - free eligibility | <Rs.2 lakh | <Rs.8 lakh |
Income tax slabs for FY 2026–27 remain unchanged. Payroll admins should continue applying the existing slab rates under the employee's chosen tax regime.
| Purpose | Old Form | New Form |
|---|---|---|
| TDS Certificate (Salary) | Form No. 16 | Form No. 130 (TDS Certificate for Salary) |
| Investment Declaration | Form No. 12BB | Form No. 124 (Investment Declaration) |
| TDS Returns(Rent/Contractor/Profesional/other) | Forms 26QB, 26QC, 26QD, and 26QE | Form No. 141(consolidated into a single form) |
The following updates are planned in line with the Income Tax Act, 2025 and related rules, and are effective from April 2026. These enhancements will be available in greytHR soon in the month of April 2026
Under the new rules, the list of cities eligible for the 50% HRA exemption has been expanded in addition to Mumbai, Delhi, Kolkata, and Chennai. The following cities are now included:
Delhi · Mumbai · Kolkata · Chennai · Bengaluru · Hyderabad · Pune · Ahmedabad
Employees residing in other cities will continue to be eligible for the 40% exemption.
Automatically determines the applicable exemption (50% or 40%) based on the employee’s residence pin code declared in IT Declarations and POI.
Updated city-to-rate mapping includes all 8 metro cities with configured pin code ranges.
Applicable from April 2026 onwards; prior periods remain unchanged.
HRA calculation logic remains the same (least of standard three conditions).
Note: Applicable only under the Old Tax Regime.
The threshold for exemption on interest-free or concessional loans has been increased to ₹2,00,000 (earlier ₹20,000).
Threshold update to ₹2,00,000 effective April 2026; earlier limits apply for prior years.
Evaluated on the aggregate outstanding balance across all loans.
If the threshold is exceeded, perquisite is calculated on the entire amount.
Monthly evaluation based on outstanding balance ensures dynamic calculation.
The Income Tax Act, 2025 introduces a completely renumbered and simplified section structure, replacing all references from the old 1961 Act. Key terminology changes effective from April 2026:
"Financial Year" is replaced with "Tax Year" throughout. For example, April 2026 to March 2027 is now referred to as Tax Year 2026–27.
All section numbers and exemption/deduction headings have been updated. Key renames include:
| Old Reference | New Reference |
|---|---|
| Section 10(13A) – HRA | Section 11 (Sch III (11)) |
| Section 80C / 80CCC | Section 123 |
| Section 80CCD (NPS) | Section 124 |
| Section 80D – Health Insurance | Section 126 |
| Section 24 – Housing Loan Interest | Section 22 |
| Chapter VI-A | Chapter VIII |
| Section 87A – Rebate | Section 156 |
| Section 192 – TDS on Salary | Section 392 |
While greytHR continuously ensures statutory compliance through system-level updates, it is equally designed to give organisations control over key decisions that require context and judgment. These are areas where your inputs play a critical role in driving the right outcomes:
greytHR supports accurate HRA tax exemption calculations as per statutory rules (50% for metro cities and 40% for non-metro cities).
At the same time, the HRA component in your salary structure remains fully configurable. Whether HRA is defined as a percentage of Basic or as a fixed amount is a business decision, and greytHR enables you to configure it as per your compensation policy.
Helps design salary structures aligned with your company’s pay philosophy
Provides control over employee CTC and take-home pay
Ensures alignment with PF and other statutory contribution bases
Supports better payroll planning and budgeting
Update or reconfigure HRA components whenever your policy changes
Simulate the impact on payroll before applying changes
Ensure compliance while retaining full control over compensation decisions
Note: These are display and compliance updates only. They do not alter eligibility, limits, or computation logic for any deduction or exemption. Labels for periods prior to April 2026 remain as they were under the old Act.
Effective from April 2026, Perquisite limits have been revised.
Detailed description of the revised limits are given in the section above titled “Revised Perquisites Valuations”.
If any of these perquisites are applicable to your employees as per your organisation's policies, please reach out to our support team, and they will help you modify the limits.
For further assistance, please reach out to greytHR Support.
Info:The gazette notification and the relevant faqs based on these changes are added here for your reference
The 8 metro cities are Mumbai, Delhi, Kolkata, Chennai, Hyderabad, Pune, Bengaluru, and Ahmedabad.
Employees in metro cities are eligible for 50% of salary as HRA exemption. For all other cities, it remains 40% of salary.
No. Only the metro city list has expanded. The formula, least of actual HRA received, 50%/40% of salary, or rent paid minus 10% of salary remains unchanged.
Yes, once the update is live. If an employee resides in Bengaluru, Hyderabad, Pune, or Ahmedabad and has declared their residential pin code correctly, greytHR will automatically apply the 50% HRA exemption rate from April 2026. No manual action is needed for tax computation. However, the HRA component in the salary structure itself is not changed — that remains as configured by your organisation.
No. The HRA percentage in salary structures is a compensation design decision. greytHR does not modify this automatically. If your organisation wishes to revise the HRA component of CTC, it must be done through the Salary Structure configuration.
The value has increased from ₹50 per meal to ₹200.
Non-cash gifts up to ₹15,000 per year are tax-free, revised from the earlier limit of ₹5,000.
Children Education Allowance is now ₹3,000/month per child (earlier ₹100) and Hostel Allowance is ₹9,000/month per child (earlier ₹300).
For engines up to 1.6L: ₹5,000/month + ₹3,000/month for driver (earlier ₹1,800 + ₹900).
For engines above 1.6L: ₹7,000/month + ₹3,000/month for driver (earlier ₹2,400 + ₹900).
The taxable perquisite is the difference between the SBI lending rate and the actual interest rate charged. Loans up to ₹2 lakh and loans taken for medical emergencies are exempt.
The income threshold has been raised from less than ₹2 lakh to less than ₹8 lakh.
No. The income tax slabs remain unchanged for FY 2026–27.
Form No. 130 replaces Form No. 16 as the TDS certificate for salary income.
Form No. 124 replaces Form No. 12BB.
All four forms have been consolidated into a single new Form No. 141.
Yes. Payroll and compliance teams should ensure their systems are updated to use the new forms before processing the April 2026 payroll.
No. These are label and compliance updates to align with the new IT Act 2025 terminology. The underlying computation logic, eligibility, and monetary limits remain the same.
All changes are effective from April 2026. Prior period payrolls are unaffected and backward compatibility is maintained.
Yes. Payroll and compliance teams should ensure their systems are updated to use the new forms before processing the April 2026 payroll.
No. HRA exemption is available only under the Old Tax Regime.
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