If you work in Ahmedabad and pay rent - this is good news for you.

From April 1, 2026, Ahmedabad has officially been added to India's metro city list for HRA (House Rent Allowance) tax purposes. This means salaried employees in Ahmedabad can now save more tax than before.

But here is the thing - this change does not happen automatically. Both employers and employees need to take action. And your payroll should be updated in time, the wrong amount of tax gets deducted from your salary every month.

Let us break it down simply. 

What Is HRA and Why Does It Matter? 

HRA is a part of your salary that your company gives to help pay for rent.

The good part? You do not have to pay tax on all of it. A portion of your HRA is tax-free - called HRA exemption.

How much is tax-free depends on one thing - which city you live in.

What Changed from April 1, 2026? 

Until March 31, 2026, only four cities were considered "metro" for HRA purposes - Mumbai, Delhi, Kolkata, and Chennai. People living in these cities could claim up to 50% of their basic salary as tax-free HRA. 

Everyone else - including Ahmedabad - was capped at 40%.

From April 1, 2026, under the new Income Tax Rules 2026, Ahmedabad along with Bengaluru, Hyderabad, and Pune has been added to the metro list. The total metro cities for HRA are now 8. 

This means if you live and work in Ahmedabad, your HRA exemption limit just went up from 40% to 50% of your basic salary. 

How Much Can You Actually Save? 

Here is a simple example.

Say your basic salary is ₹50,000 per month. You receive ₹20,000 as HRA. You pay ₹18,000 as rent. 

Before April 2026 (40% rule): Tax-free HRA = lowest of: 

• Actual HRA received = ₹20,000 
• Rent paid minus 10% of basic = ₹18,000 − ₹5,000 = ₹13,000 
• 40% of basic salary = ₹20,000 

Tax-free amount = ₹13,000 per month 

From April 2026 (50% rule): 

• 50% of basic salary = ₹25,000 
• Everything else stays the same 

Tax-free amount = still ₹13,000 in this case - because rent paid minus 10% is the lowest. 

But for employees with higher HRA and higher rent, this 10% jump creates significant tax savings - sometimes ₹10k to ₹30k per year or more depending on salary. 

Important: This Only Works Under the Old Tax Regime 

HRA exemption is available only under the old tax regime. Employees who have opted for the new tax regime can’t claim this benefit. 

If you are on the new tax regime and want to take advantage of this HRA change, you need to switch to the old regime by submitting Form 122 to your employer. 

What Employers and Payroll Teams Must Do Right Now 

This is where most companies slip up. The rule changed - but payroll software and salary masters don't update on their own. 

Here is your checklist: 

1. Update HRA calculation in your payroll system. Change the city classification for Ahmedabad employees from non-metro (40%) to metro (50%) from April 2026 salary onwards. 
2. Check employee investment declarations. Employees who have already submitted investment declarations should verify that HRA is being computed at 50% for April 2026 onwards. 
3. Collect updated rent proofs. Under the new rules, documentation is stricter. If an employee's annual rent exceeds ₹1,00,000, the landlord's PAN is mandatory. 
4. Switch from Form 12BB to Form 124. The new Form 124 replaces Form 12BB for investment declarations from April 2026. It now requires mandatory landlord relationship disclosure - employees paying rent to parents or relatives must declare this relationship. 
5. Verify employee tax regime choice. HRA benefit is only for employees on the old tax regime. Check each employee's regime declaration before processing April salary. 

What Employees in Ahmedabad Should Do 

• Tell your HR or payroll team that you are on the old tax regime 
• Submit updated rent receipts and rental agreement 
• Provide your landlord's PAN if your monthly rent is above ₹8,333 
• Check your April salary slip - it should reflect the updated 50% HRA calculation 

The Compliance Risk Nobody Talks About 

If your payroll is not updated and you continue deducting TDS at the old 40% rate, employees will pay more tax than required every month. They will get a refund when they file their ITR - but that is their money sitting with the government for months unnecessarily. 

Worse, if the wrong HRA exemption is applied and documentation is missing, it can trigger notices during ITR processing. 

This is exactly where payroll compliance software and accounting software with built-in tax rule updates make a real difference. Instead of manually tracking every regulatory change, your system stays updated and flags errors before they become problems. 

Quick Summary 

The change is live. The question is whether your payroll reflects it yet. 

At Tripta Innovations Pvt Ltd, our software is built to handle exactly these kinds of compliance updates - so your payroll stays accurate, your employees get the right take-home, and you never get caught with outdated tax logic.