In a significant income tax reform, the government has extended higher House Rent Allowance (HRA) exemption benefits to cities like Bengaluru, along with Hyderabad, Pune, and Ahmedabad, potentially increasing take-home salaries for many professionals.
From April 1, these cities will now qualify for the 50% HRA exemption cap—previously limited to metros such as Delhi, Mumbai, Chennai, and Kolkata.
Relief for high-rent cities
The move addresses rising rental costs in fast-growing urban hubs, where employees were earlier restricted by lower exemption limits despite paying high rents.
Tax experts say this change allows individuals—especially those with HRA close to 50% of their basic salary—to maximise exemptions, potentially increasing annual savings by ₹60,000 to ₹1.2 lakh.
Not for everyone
The benefit applies only under the old tax regime and is most advantageous for mid to high-income earners with significant rental expenses.
Those with fewer deductions or lower incomes may still find the new tax regime more beneficial due to lower rates and simpler compliance.
How HRA exemption is calculated
HRA exemption is determined as the lowest of the following:
- Actual HRA received
- 50% of salary (basic + DA) for eligible cities, or 40% for others
- Rent paid minus 10% of salary
The smallest of these three amounts is exempt from tax, while the remaining HRA becomes taxable.
Stricter compliance norms
Authorities are also tightening verification processes. Taxpayers must disclose landlord details and maintain proper documentation, especially when rent is paid to family members.
Experts advise employees to reassess their tax regime choice annually, as the benefits vary depending on salary structure, rent, and deductions.
The reform marks a shift towards aligning tax relief with real-world living costs in India’s rapidly expanding urban centres.