Discover Key IT Rules 2026 Changes for HR Admins

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. 

HRA exemption – expanded metro cities

The list of metro cities eligible for the higher 50% HRA exemption has been expanded from 4 cities to 8 cities.

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.

Revised perquisite valuations

The following perquisite limits have been revised.

Employer loans

Overseas medical treatment benefit

Income tax slabs

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.

What’s new in greytHR 

The following updates are planned in line with the Income Tax Act, 2025 and related rules, and are effective from April 2026.

Expanded Metro Cities for HRA Exemption (Rule 279, IT Rules 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.

How greytHR handles this:

• 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.

Updated Loan Perquisite Threshold (Rule 15(5), IT Rules 2026)

The threshold for exemption on interest-free or concessional loans has been increased to ₹2,00,000 (earlier ₹20,000).

How greytHR handles this:

• 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.

Updated Terminology and Section References (IT Act 2025)

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:

Where greytHR Enables You — Employer Decisions Drive Value

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:

HRA Configuration — Flexible to Your Company Policy

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

What you can do in greytHR

• 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.

Revised Perquisite Valuations

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

Related Articles:

• View budget changes for FY 2025-26

• View income tax slabs