Income Tax HRA Exemption: Government expands Number of cities for 50% Deduction

The Government of India has proposed to bring significant relief for the employees working in major metropolitan cities by making a few amendments in the provisions of House Rent Allowance (HRA) under the old tax regime.

Presently, only four cities, Mumbai, Delhi, Kolkata, and Chennai, qualify for the higher 50% HRA exemption limit as per their salaries. While all the other cities are staying at the 40% HRA exemption limit. Now, the government is planning to extend this limit upto four more cities. This proposal aims to expand the existing list to reflect rising housing costs and changing urban realities.

As per the proposed amendment, Bengaluru, Hyderabad, Pune, and Ahmedabad will be further included in the existing list of cities enjoying the HRA exemption limit at 50%. If successfully implemented, the employees working in these eight cities will become eligible to claim HRA exemption up to 50% of their salary for the relevant period. However, as of now, cities other than these eight will continue to remain at the 40% HRA exemption limit, as this relief has been designed to relieve employees working in remote cities.

The proposal forms part of a broader effort to modernise tax provisions and align them with current urban demographics, where several fast-growing cities now face residential costs comparable to traditional metros. By recognising these economic shifts, the government aims to provide more realistic tax relief to salaried individuals dealing with increasing rental expenses.