50% HRA Benefit: Draft Rules Propose 50% HRA Benefit for These Cities

50% HRA Benefit: Significant news is emerging for salaried employees across India regarding House Rent Allowance (HRA) exemptions. Until now, under the existing Income Tax rules, only employees residing in the four traditional metro cities—Delhi, Mumbai, Kolkata, and Chennai—were eligible to claim a 50% tax exemption on their HRA. However, acknowledging the shifting economic landscape, the government has proposed a major expansion to this list.

If the proposed draft rules are implemented, salaried taxpayers in four additional major cities could soon be eligible for this higher tax relief.

Which New Cities Might Be Included?

According to Rule 279 of the draft rules, the government is planning to redefine what constitutes a ‘metro city’ for HRA calculations. Under the proposed overhaul, Bengaluru, Hyderabad, Pune, and Ahmedabad would be placed in the same bracket as the four established metros.

Over the past decade, these cities have emerged as powerhouse centers for technology, startups, manufacturing, and services. This growth has attracted a massive salaried population and significantly driven up rental costs. The proposal aims to update HRA norms to reflect these ground realities.

How Will This Impact HRA Calculation?

Currently, employees living in non-metro cities are eligible for an HRA exemption of up to 40% of their salary. Under the new proposal, employees in the four newly added cities would be able to claim a 50% exemption, similar to their counterparts in Delhi or Kolkata.

It is important to note that the method for computing HRA relief remains unchanged. The exemption amount will continue to be determined as the lowest of the following three figures:

• The actual HRA received from the employer.
• The actual rent paid minus 10% of the salary.
• 50% of the salary (for the expanded list of 8 metros) or 40% (for other cities).

Who Can Avail This Benefit?

Taxpayers must note that HRA is treated as part of the employee’s cost-to-company (CTC) package. The exemption benefit is available only to those who opt for the Old Tax Regime.

Under the New Tax Regime, while the tax slab rates are lower, salaried taxpayers are not permitted to claim HRA exemption under Section 10(13A) of the Income Tax Act, 1961. This proposed update serves as a potential relief for those sticking to the old system to manage their high rental outgoings in India’s growing urban hubs.

Disclaimer: This article is for informational purposes only and does not constitute financial advice. Please consult a Chartered Accountant or tax professional before making any tax-related decisions.