Tech Hub Bengaluru Seeks Metro Status For Higher HRA Exemption - Will It Succeed?

As Union Finance Minister Nirmala Sitharaman prepares to present the budget on July 23, there is a growing call for Bengaluru, known for its tech and start-up prowess, to be included in the metro cities list for House Rent Allowance (HRA) exemption.

Currently, only New Delhi, Mumbai, Kolkata, and Chennai qualify for a 50 percent HRA exemption under the old tax regime. In contrast, other non-metro cities, including Bengaluru, Hyderabad, and Pune, receive a 40 percent exemption.

According to Section 10 (13A) of the Income Tax Act, 1961, salaried employees can claim HRA exemption. Rule 2A of the Income Tax Rules, 1962, states that the exempt amount is the least of the following: actual HRA received, actual rent paid minus 10 percent of basic salary plus Dearness Allowance, and 40 percent of basic salary plus DA (50 percent for Mumbai, Kolkata, Delhi, and Chennai).

Bengaluru has been advocating for HRA exemption for several years. The Karnataka government increased the guidance value by up to 30 percent starting October 2023. The rising property guidance values, housing shortages, escalating construction costs, and the return of work-from-office mandates have driven up rental prices in the tech capital. A search on real estate platforms shows that Bengaluru's rent is now higher than in cities like Kolkata and Chennai.

Industrialists Call for Metro Status

Industrialists have also urged the government to include Bengaluru in the metro cities list. Former Infosys CFO TV Mohandas Pai remarked, "Only the old presidency towns are still classified as metros, and the government has not updated this list in 40-50 years. Bengaluru, being the third-largest economy and generating more jobs than Kolkata or Chennai, continues to face discrimination."

Pai highlighted that many central government regional offices are established in these old presidency towns, causing Bengaluru to miss out on employment opportunities. "People from Bengaluru and Hyderabad often have to travel to cities like Chennai to access government services," he noted.

Ramesh Chandra Lahoti, President of the Federation of Karnataka Chambers of Commerce & Industry (FKCCI), emphasized, "Bengaluru contributes significantly to India's GDP. It is a major hub for IT and ITeS industries and is known as the start-up capital. Given the high cost of living and the growth of newer cities, it is crucial for Bengaluru to be recognized as a metro city for HRA purposes, benefiting countless middle-class taxpayers."

In 2017, an online petition on Change.org advocated for Bengaluru and other cities to be classified as metro cities. "The Constitution (Seventy-Fourth Amendment) Act, 1992, suggests that cities like Bengaluru should be included in the metro category. The outdated metro city list affects taxpayers who contribute significantly each year," stated Arpan Kumar, who initiated the petition.

In December 2022, BJP leader and Bengaluru South MP Tejasvi Surya urged Sitharaman to consider expanding the list of metro cities under Income Tax rules. "This would enable more salaried employees in cities like Bengaluru to claim a 50 percent HRA deduction," Surya said. He added that many salaried professionals live in high-cost cities like Bengaluru, and expanding the metro list would benefit a large number of middle-class taxpayers.

Bengaluru hosts over 5,500 IT/ITES companies and around 750 multinational corporations, contributing approximately $85 billion to India's exports. The city provides direct employment to over 1.2 million professionals and creates more than 3.1 million indirect jobs. Karnataka accounts for nearly 40 percent of the country's software exports, reinforcing Bengaluru's status as a global IT hub and a leading destination for global capability centers, housing about 40 percent of India's GCCs.