April 2026 Income Tax Changes for Hyderabad Employees

Two different years (September 9, 2026): The changes in this guide apply to salary paid from April 1, 2026, which is tax year 2026-27 under the Income-tax Act, 2025, with its return due in 2027. Your AY 2026-27 return for FY 2025-26 salary is a separate exercise under the 1961 Act: the July 31, 2026 due date for ITR-1 and ITR-2 has passed, and a belated return under Section 139(4) can be filed until December 31, 2026 with the Section 234F fee of Rs 5,000 (Rs 1,000 if total income is up to Rs 5 lakh). Tax Garden files belated salary returns on a fixed fee.

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 the excess should be adjusted in the TDS of later months of the same tax year.
• 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 (the limit works out to about Rs. 8,333 per month). 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

For salary paid from April 1, 2026 (tax year 2026-27), every TDS-deducting employer in Hyderabad issues Form 130 instead of Form 16, by June 15, 2027 (Rule 215 of the Income-tax Rules, 2026). For salary paid in FY 2025-26, the certificate is still Form 16 under the Income-tax Act, 1961, due 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: Issue Form 16 for FY 2025-26 salary, based on the Q4 Form 24Q. Coordinate with your payroll provider so that Form 130 is set up for salary paid from April 2026; it has to be generated and downloaded from the portal specified by the Income-tax Department.
• Hyderabad employees: For FY 2025-26 salary you receive Form 16, and that is the certificate for your AY 2026-27 return. Form 130 comes for salary paid from April 2026 onwards, by June 15, 2027.

4. New TDS and TCS Return Forms: 138, 140, 143, 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 143 replaces Form 27EQ (TCS)

The quarterly due dates are 31 July, 31 October, 31 January and 31 May (Rule 219 of the Income-tax Rules, 2026). The TCS statement in Form 143 follows the same four dates as the TDS statements. These forms apply to tax deducted or collected from April 1, 2026; statements and corrections for quarters up to March 2026 stay in Forms 24Q, 26Q, 27Q and 27EQ.

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 TDS certificates (Form 131, earlier Form 16A) for payments from April 2026 should reference the new Act sections.

5. New Tax Regime Is Now the Default

Tax Rate Chart

New Tax Regime Slabs : FY 2026-27 (Default)

Applicable to all salaried employees unless old regime is actively elected

Up to Rs. 4,00,000

Nil tax; Rs. 75,000 standard deduction already factored in

0%

Rs. 4,00,001 : Rs. 8,00,000

Effective zero tax up to Rs. 12 lakh via Section 87A rebate

5%

Rs. 8,00,001 : Rs. 12,00,000

Section 87A rebate of up to Rs. 60,000 covers tax here

10%

Rs. 12,00,001 : Rs. 16,00,000

HRA exemption not available under new regime

15%

Rs. 16,00,001 : Rs. 20,00,000

Old regime may win if HRA + home loan + 80C are high

20%

Rs. 20,00,001 : Rs. 24,00,000

Compare with old regime before finalising election

25%

Above Rs. 24,00,000

Plus 4% health and education cess on tax

30%

Source: Income Tax Act 2025, default concessional regime slabs effective April 1, 2026

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

The ITR forms for AY 2026-27 report FY 2025-26 income, which is still governed by the Income-tax Act, 1961. Points to note:

• Section references in these returns remain those of the 1961 Act; the Income-tax Act, 2025 applies to income earned from April 1, 2026
• Old regime vs new regime selection is prominent and binding
• HRA claims require landlord PAN fields for rent above Rs. 1 lakh
• Form 16 and Form 16A data (TDS for FY 2025-26) 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.

If you would rather hand the new forms to a professional, our income tax consultant in Hyderabad guide compares local fees and what to check before you hire.

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 16 for FY 2025-26 salary by June 15, 2026. Form 130 starts with salary paid from April 2026 and is first due by June 15, 2027.
5. File Form 138 by July 31, 2026 for Q1 (April to June 2026). Not Form 24Q, which stays in use only for quarters up to March 2026.
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.

If your business also files GST returns, this quarter is a good time to check whether your GST consultant in Hyderabad reconciles GSTR-2B every month rather than just entering data.

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 following the tax year
• 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

From which salary month does the 50% HRA rate apply to Hyderabad employees?

The 50% of basic salary limit for Hyderabad applies to salary for FY 2026-27, starting with April 2026 salary, under the Income-tax Rules, 2026. It does not apply to FY 2025-26, so the ITR for AY 2026-27 must still use 40% for Hyderabad. If your employer's payroll applied 40% for early FY 2026-27 months, the difference can be corrected in later months' TDS.

Which TDS certificate should I use for my AY 2026-27 return?

For salary paid in FY 2025-26, your employer issues Form 16 under the Income-tax Act, 1961, and that is what you use to file the AY 2026-27 return. The new certificate under the Income-tax Rules, 2026 applies to salary paid from April 2026 onwards, so you will first receive it for Tax Year 2026-27, in 2027.

I missed the ITR deadline for AY 2026-27. What can I do now?

You can file a belated return by 31 December 2026 with a Section 234F late fee of Rs 5,000, or Rs 1,000 if total income is up to Rs 5 lakh, plus 1% monthly interest under Section 234A on unpaid tax. A belated return is taxed under the new regime, so HRA exemption and other old-regime deductions cannot be claimed.

Should a Hyderabad employee with high rent choose the old regime for FY 2026-27?

It depends on the numbers. With the 50% HRA limit, high-rent employees in areas like Gachibowli or Kondapur can get a larger HRA exemption under the old regime. If that exemption plus 80C, 80D, NPS and home loan interest is large enough, the old regime may beat the new regime. Compare both on your actual salary before declaring to your employer.

What does a Hyderabad employer need to change in payroll for FY 2026-27?

Mark Hyderabad as a 50% HRA city for employees opting for the old regime, collect fresh rent declarations with landlord PAN where annual rent exceeds Rs 1 lakh, and update TDS section references to the Income-tax Act, 2025 for salary paid from April 2026. Returns and certificates for FY 2025-26 salary continue under the 1961 Act.