Rule 279 of Income explained: this guide covers what it means, who it applies to, the step-by-step process, documents required, fees, due dates and penalties in India — so you can stay compliant with confidence and avoid costly mistakes.
Rule 279 of the Income-tax Rules, 2026 prescribes the house rent allowance exemption under Schedule III to the Income-tax Act, 2025. The exemption is the least of three amounts, and the third limb is now 50% of salary for Mumbai, Kolkata, Delhi, Chennai, Hyderabad, Pune, Ahmedabad and Bengaluru and 40% for any other place — doubling the list of 50% cities from the four metros of rule 2A.
The single change that matters
For as long as rule 2A of the Income-tax Rules, 1962 governed house rent allowance, the 50% limb was confined to four cities. Rule 279 lists eight:
| Sl. No. | Location of residential accommodation | Percentage of salary |
|---|---|---|
| 1 | Mumbai, Kolkata, Delhi, Chennai, Hyderabad, Pune, Ahmedabad and Bengaluru | 50% |
| 2 | Any other place | 40% |
Hyderabad, Pune, Ahmedabad and Bengaluru move from the 40% limb to the 50% limb. For a salaried employee in any of those four cities the third limb of the computation rises by a quarter, and for high-rent employees the third limb is very often the binding constraint. This is the largest structural change to the HRA computation in decades, and it sits in a two-row table.
The computation — least of three
Rule 279(1) says the amount not to be included in total income is the least of:
- (a) the actual amount of the allowance received in respect of the relevant period;
- (b) the amount by which the expenditure actually incurred in payment of rent for the residential accommodation occupied exceeds one-tenth of the salary due for the relevant period; and
- (c) 50% or 40% of salary due for the relevant period, per the table above.
What "salary" means here
Rule 279(2)(b) defines it narrowly. Salary includes dearness allowance if provided for under the terms of employment, and excludes all other allowances and perquisites. So no bonus, no other allowance, no perquisite value.
What "relevant period" means
Rule 279(2)(a): the period during which the accommodation was occupied by the assessee during the tax year. Not the whole year by default — the period of occupation.
An employee who moves from Nagpur to Pune in October has two relevant periods, two rent figures, two salary figures and — now — two different percentages in limb (c). Computing on annual aggregates gives the wrong answer in every such case, and after rule 279 the error is larger than it used to be.
A worked illustration
An employee in Bengaluru for the whole tax year: salary Rs 12,00,000 (basic plus dearness allowance forming part of the terms of employment), house rent allowance Rs 4,80,000, rent actually paid Rs 4,20,000.
| Limb | Computation | Amount |
|---|---|---|
| (a) Allowance received | — | Rs 4,80,000 |
| (b) Rent less one-tenth of salary | Rs 4,20,000 − Rs 1,20,000 | Rs 3,00,000 |
| (c) 50% of salary — Bengaluru is now a 50% city | 50% of Rs 12,00,000 | Rs 6,00,000 |
| Exempt — least of the three | Rs 3,00,000 | |
On these numbers the answer is the same under either percentage, because limb (b) is the least. The change bites where limb (c) is the binding constraint — that is, where rent is high relative to salary. Take the same employee with house rent allowance of Rs 7,20,000 and rent actually paid of Rs 7,80,000:
| Limb | Amount |
|---|---|
| (a) Allowance received | Rs 7,20,000 |
| (b) Rs 7,80,000 − Rs 1,20,000 | Rs 6,60,000 |
| (c) 50% of Rs 12,00,000 — rule 279 | Rs 6,00,000 |
| (c) 40% of Rs 12,00,000 — the position before rule 279 | Rs 4,80,000 |
| Exempt under rule 279 | Rs 6,00,000 |
| Exempt on the old 40% classification | Rs 4,80,000 |
Rs 1,20,000 of additional exempt salary, from one row of a table. The practical rule: the more of an employee's pay that goes to rent, the more the city classification matters.
Rule 279 and the choice of regime
Rule 279 itself is silent on regimes — it prescribes the quantum, not the entitlement. Entitlement flows from Schedule III read with the option provisions in section 202, exercised through the return under rule 136. Contrast rule 280, which carries an express new-regime restriction in its own sub-rule (3). Read the Schedule entry and section 202 before advising an employee who has opted under section 202(4).
Practical guidance
- Reclassify Hyderabad, Pune, Ahmedabad and Bengaluru employees to the 50% limb. This is the first payroll change to make for tax year 2026-27.
- Compute period-wise wherever the employee moved city, changed accommodation, or had a period with no accommodation.
- Keep rent evidence. Limb (b) is expenditure actually incurred; without payment there is no exemption regardless of the allowance received.
- Build the salary base correctly — basic plus dearness allowance only where dearness allowance is part of the terms of employment. Nothing else.
- Do not read the eight-city list as a "metro" test. It is a closed list of named cities, not a category. A city not named is a 40% place however large.
Common mistakes
- Using 40% for Bengaluru, Hyderabad, Pune or Ahmedabad in tax year 2026-27.
- Including commission, bonus or other allowances in "salary" — rule 279(2)(b) excludes all allowances other than qualifying dearness allowance, and all perquisites.
- Taking one-tenth of gross salary rather than one-tenth of salary as defined.
- Annualising a part-year occupation.
- Extending the 50% list to suburbs or metropolitan regions of the named cities without support.