Income Tax Changes from April 2026: What Hyderabad Salaried Employees and Employers Need to Know

April 1, 2026 was the single largest income tax reset in a generation. The Income Tax Act 1961 retired after 65 years. The Income Tax Act 2025 took effect. Every section number, form name, and several allowance rules changed in one day.

For Hyderabad salaried employees and the employers who pay them, five changes matter most: the city's upgrade to 50% HRA status, the stricter landlord-PAN rule, Form 130 replacing Form 16, the new TDS return forms (138, 140, 144), and the default shift to the new tax regime. This guide covers each one with the practical "what to do" for Hyderabad payroll teams and individuals.

1. Hyderabad Joins the 50% HRA Metro City List

The most immediate take-home-pay change for Hyderabad employees.

What Changed

Under the 1961 Act, HRA exemption under the metro-city rule was available at 50% of basic salary only for four cities: Delhi, Mumbai, Kolkata, and Chennai. Every other city, including Hyderabad, Bengaluru, Pune, and Ahmedabad, was treated as non-metro and capped at 40% of basic salary.

Under the Income Tax Act 2025 effective April 1, 2026, the list has been expanded to eight cities:

50% HRA eligible cities (FY 2026-27 onwards):

1. Delhi
2. Mumbai
3. Kolkata
4. Chennai
5. Hyderabad (newly added)
6. Bengaluru (newly added)
7. Pune (newly added)
8. Ahmedabad (newly added)

For the complete list of changes, see our April 2026 financial changes guide for SME owners.

Worked Example: What It Means in Rupees

Consider a Hyderabad employee with:

• Basic salary: Rs. 60,000 per month (Rs. 7,20,000 per year)
• HRA received: Rs. 24,000 per month (Rs. 2,88,000 per year)
• Actual rent paid: Rs. 30,000 per month (Rs. 3,60,000 per year)

HRA exemption is the least of three figures:

In this example, the "least of three" still yields the same answer, because the HRA received is the binding constraint. But for employees where the 40% cap was the binding number (high-basic, high-rent profiles common in HITEC City and Gachibowli), the 50% upgrade directly increases the exemption. For an employee with basic Rs. 1,00,000/month and HRA Rs. 50,000/month living in Kondapur paying Rs. 45,000 rent:

• Old rule: exemption capped at Rs. 4,80,000 (40% of Rs. 12 lakh basic)
• New rule: exemption capped at Rs. 6,00,000 (50% of Rs. 12 lakh basic)
• Additional exempt income: Rs. 1,20,000 per year

At the 30% slab, that is roughly Rs. 37,440 saved in income tax per year, including cess.

Action Items

For Hyderabad employees:

• Re-submit your HRA declaration to HR for FY 2026-27 confirming Hyderabad is your place of employment.
• Check that your next payslip reflects the 50% cap for exemption calculation.
• Keep rent receipts, rental agreement, and your landlord's PAN ready.

For Hyderabad employers:

• Update payroll software to mark Hyderabad as a 50% HRA city. Major payroll platforms (greytHR, Zoho Payroll, Keka, RazorpayX Payroll) have pushed updates.
• Re-run TDS computation for April 2026 salaries. If your system calculated exemption at 40%, employees are over-deducted and you must refund via next payslip or Form 130.
• Communicate the change proactively to staff.

2. Stricter HRA Documentation: Landlord PAN Mandatory

What Changed

Under the new Act, landlord PAN is mandatory for annual rent exceeding Rs. 1,00,000. Earlier the rule was softer and employers exercised discretion. From April 1, 2026:

• Rent receipts must include the landlord's full name, address, and PAN.
• Rental agreement should quote the landlord's PAN.
• Employers are required to verify HRA claims more thoroughly before allowing the deduction in Form 130 (the new TDS certificate replacing Form 16).

Why This Matters in Hyderabad

HRA rent in HITEC City, Gachibowli, Kondapur, Madhapur, and Jubilee Hills routinely exceeds Rs. 1 lakh per year (Rs. 8,500 per month is the threshold). In practice, almost every salaried tenant in Hyderabad's tech and IT corridor will need to produce the landlord's PAN.

If the landlord refuses to share PAN, the employee cannot claim HRA exemption on that rent. This frequently surfaces with individual landlords who rent out a single flat and do not file returns. Address this before you sign a new lease or renew your existing one.

Action Items

• Ask for the landlord's PAN at the time of rental agreement signing.
• If you are on an existing lease, request the PAN in writing for your FY 2026-27 HRA claim.
• If the landlord refuses, factor the lost HRA exemption into your rent negotiation.
• Employers: train your HR team to reject rent receipts missing PAN for rents above Rs. 1 lakh annually.

3. Form 16 Replaced by Form 130

Every TDS-deducting employer in Hyderabad must now issue Form 130 (not Form 16) to employees for FY 2025-26, by June 15, 2026.

Form 130 is more granular than Form 16. It has:

• Separate sections for old-regime and new-regime tax computation
• Expanded perquisite valuation (company car, rent-free accommodation, ESOPs)
• Deductions mapped to new-Act section numbers
• Enhanced digital format with verification codes

For the complete Form 130 structure and what employees should verify line-by-line, see our Form 130 guide for salaried employees.

Action Items

• Hyderabad employers: Coordinate with your payroll provider to ensure Form 130 is generated correctly. The TRACES portal now issues Part A in Form 130 format for Q4 FY 2025-26 returns.
• Hyderabad employees: Expect Form 130 (not Form 16). If you receive a Form 16 from your employer after April 1, 2026, flag it.

4. New TDS Return Forms: 138, 140, and 144

Employers deducting TDS file new quarterly forms under the 2025 Act:

• Form 138 replaces Form 24Q (salary TDS)
• Form 140 replaces Form 26Q (non-salary resident TDS, including contractor, professional, rent, and commission payments)
• Form 144 replaces Form 27Q (non-resident TDS)
• Form 144A replaces Form 27EQ (TCS)

The quarterly due dates are unchanged (31 July, 31 October, 31 January, 31 May for TDS; 15th of the following month for TCS). Only the form names, section references, and dropdown values have been updated.

For the complete section-renumbering map, new TCS rates, and the new 2-year correction window, see our TDS and TCS changes guide for FY 2026-27.

Action Items for Hyderabad Employers

• Confirm your accounting software (Tally, Zoho Books, Busy, Marg) has been updated to the new Act mapping.
• Test a sample TDS entry in Form 138 / 140 format before your first live deduction in April 2026.
• Update your vendor communications. Notices and Form 16A letterheads should reference the new Act sections.

5. New Tax Regime Is Now the Default

Under the new Act, the concessional tax regime is the default for FY 2026-27. If an employee does not actively opt out and pick the old regime, their salary TDS will be computed under the new regime slabs.

For FY 2026-27 (AY 2027-28) under the new regime:

• Up to Rs. 4,00,000: Nil
• Rs. 4,00,001 to Rs. 8,00,000: 5%
• Rs. 8,00,001 to Rs. 12,00,000: 10%
• Rs. 12,00,001 to Rs. 16,00,000: 15%
• Rs. 16,00,001 to Rs. 20,00,000: 20%
• Rs. 20,00,001 to Rs. 24,00,000: 25%
• Above Rs. 24,00,000: 30%

Section 87A rebate: up to Rs. 60,000 for taxable income up to Rs. 12,00,000 under the new regime (effectively zero tax up to Rs. 12 lakh). Standard deduction: Rs. 75,000 under the new regime.

For detailed regime comparison with worked examples, see our income tax slab rates guide for FY 2026-27.

Old Regime Still Matters for High-HRA Hyderabad Employees

The new regime does not allow HRA exemption, home loan interest under Section 24(b), or deductions under the old Section 80C, 80D, and 80E.

For a Hyderabad employee with:

• High rent (typical HITEC City / Kondapur / Gachibowli rentals)
• Home loan interest above Rs. 1.5 lakh
• PPF / ELSS / insurance premiums covering 80C

...the old regime plus 50% HRA metro status may still yield lower tax than the new regime. Run both computations for every staff member during FY 2026-27. This is where a dedicated payroll partner adds measurable rupee value.

6. Updated ITR Forms for AY 2026-27

ITR-1 through ITR-7 have been restructured for the new Act. The most visible changes:

• Section references point to Income Tax Act 2025 (not 1961)
• Old regime vs new regime selection is prominent and binding
• HRA claims require landlord PAN fields for rent above Rs. 1 lakh
• Form 16A / Form 130 data pre-fills from the e-filing portal

ITR-1 and ITR-2 deadlines remain July 31. ITR-3 and ITR-4 have been permanently moved to August 31.

For a complete walkthrough of the revised ITR forms, see our ITR filing guide for AY 2026-27.

Quick Reference: What Changed for Hyderabad Specifically

What Hyderabad Employers Should Do This Quarter

1. Refresh HRA declarations. Ask every employee based in Hyderabad to reconfirm place of work in writing. This becomes the audit evidence for claiming 50% HRA exemption.
2. Install payroll software updates. Confirm 50% metro flag is set for Hyderabad employees.
3. Re-compute April to June 2026 TDS. If April salaries were processed before your software update, reconcile and correct via May payroll.
4. Issue Form 130 for FY 2025-26 by June 15, 2026. Not Form 16.
5. File Form 138 by July 31, 2026 for Q1. Not Form 24Q.
6. Update your employee handbook and HR communications. The old Section 80C, 80D, 24(b), 10(13A) references need updating to the new Act sub-sections.

How Tax Garden Handles Your Hyderabad Payroll Compliance

Moving your Hyderabad payroll to the new Act in one quarter is operationally heavy. Tax Garden's tax compliance service covers:

• Employee-wise HRA eligibility verification with 50% cap applied correctly for Hyderabad
• Landlord PAN collection and documentation trail
• Monthly salary TDS computation under the new regime (or old, based on employee election)
• Issue of Form 130 to every employee by June 15
• Quarterly Form 138 filing (salary TDS)
• Regime optimisation analysis so employees on high HRA + home loan + 80C do not overpay
• Hyderabad office support at our Kondapur location if you prefer in-person coordination

Frequently Asked Questions

Is Hyderabad now a 50% HRA metro city under the Income Tax Act 2025?

Yes. Effective April 1, 2026, Hyderabad has been added to the 50% HRA metro city list alongside Bengaluru, Pune, and Ahmedabad. Delhi, Mumbai, Chennai, and Kolkata remain on the list. Hyderabad salaried employees can now claim HRA exemption capped at 50% of basic salary instead of the earlier 40%.

What do I need to show my employer for the 50% HRA benefit?

Your place of work should be recorded as Hyderabad in HR records. Submit updated rent receipts, a rental agreement that shows the property is in Hyderabad, and the landlord's PAN if your annual rent exceeds Rs. 1,00,000.

My landlord refuses to share PAN. Can I still claim HRA?

For annual rent above Rs. 1,00,000, the landlord's PAN is mandatory. Without it, your employer cannot allow the HRA exemption in Form 130, and if you claim it directly in ITR, the deduction may be disallowed. Negotiate with the landlord, or keep annual rent below Rs. 1,00,000 (Rs. 8,333 per month).

Should I pick the old regime or the new regime for FY 2026-27?

For most salaried employees, the new regime is simpler and often saves more tax. However, if you have high HRA (Hyderabad 50% rule helps you here), a home loan, and full 80C / 80D deductions, the old regime may still win. Run both computations or ask your payroll team to do so.

When will my employer issue Form 130 for FY 2025-26?

By June 15, 2026. Form 130 has replaced Form 16. If you receive a Form 16 instead, flag it to HR, because ITR filing portals will expect Form 130 data for AY 2026-27.

I am a Hyderabad employer. What TDS return do I file for Q1 FY 2026-27?

Form 138 for salary TDS, Form 140 for contractor and professional payments, and Form 144 for non-resident payments. Due dates are unchanged: 31 July, 31 October, 31 January, and 31 May.

Is the Tax Year concept different from the Financial Year?

Under the Income Tax Act 2025, the Tax Year concept has been introduced. For FY 2026-27 (April 2026 to March 2027), the Tax Year is 2026-27 and the Assessment Year is 2027-28. The relationship between Previous Year and Assessment Year from the old Act has been simplified.

Do these changes apply only from April 2026 or retroactively?

These changes apply prospectively from April 1, 2026 (FY 2026-27). Salary paid and TDS deducted up to March 31, 2026 continues under the old Act and old rules. Your Form 16 for FY 2025-26 may still be issued in the old format if your employer has not yet migrated.