Union Budget 2024: Will Bengaluru be included in 50% HRA exemption?

Currently, rented houses in Delhi, Mumbai, Kolkata, and Chennai qualify for a 50% exemption from HRA, while those in other locations (non-metro) fall into the 40% category

Ahead of the Union Budget 2024, reports suggest that salaried individuals are expecting tax relief in the form of reduced tax rates, changed income tax slabs, and even higher deductions.

One such relief is the inclusion of more non-metro cities in the list for 50 per cent house rent allowance (HRA) exemption, according to a report by The Times of India.

Employees who receive HRA and pay rent for their accommodation can claim a tax exemption on this allowance under the old income tax regime. The exemption amount varies based on whether the employee resides in a metro city for tax purposes. However, if an employee receiving HRA does not live in a rented house, the entire allowance is subject to full taxation, the report said.
 

The amount of HRA that can be claimed as tax-exempt is the lowest of the following:

>Actual HRA received

>Actual rent paid minus 10 per cent of basic salary

>50 per cent of basic salary (for metro cities)/ 40 per cent of basic salary (for non-metro cities).

Currently, rented houses in Delhi, Mumbai, Kolkata, and Chennai qualify for a 50 per cent exemption from HRA, while those in other locations, including Bengaluru, fall into the 40 per cent category.

As cities have grown in population and economic significance, there is a pressing need to reconsider how we define metropolitan and non-metropolitan areas, the report said.

The Constitution (Seventy-Fourth Amendment) Act of 1992 also acknowledges Bengaluru, Pune, and Hyderabad, besides the National Capital Region (NCR), as metro cities. However, outdated tax laws maintain the HRA tax exemption at 40 per cent for salaried individuals in these cities, the report stated.

Living outside major cities often means a larger portion of income goes towards taxes. For example, someone in Bengaluru might face higher average rents than those in Kolkata or Chennai, classified as ‘metros’ for tax purposes.

Residents in rapidly developing non-metros, according to the Income Tax Act, might pay higher rents due to urban growth. Yet, they get fewer tax breaks for rent compared to metros. With more people moving to these areas for work, experts urge the government to rethink rent exemption rules to ease taxpayers’ financial burden, the report said.