Government Mulls 50% HRA Tax Relief for More Metro Cities

Salaried employees living in India's fast-growing cities may soon get a major tax break, as the Union government considers expanding the 50% House Rent Allowance (HRA) exemption to more urban centres beyond the four traditional metros.

At present, only employees living in Delhi, Mumbai, Kolkata and Chennai can claim HRA exemption up to 50% of their basic salary if they live in rented accommodation. For all other cities, the exemption is capped at 40%. The proposed change could narrow this gap.

Who benefits?

The move is expected to help middle-class salaried taxpayers who depend on HRA to manage high rental expenses, especially those working in large employment hubs where housing costs have surged in recent years.

What is changing?

The government is reviewing whether additional cities should be treated on par with metros for HRA calculation. If approved, employees in these cities would be eligible for a higher tax exemption, reducing their taxable income under the old tax regime.

Where could this apply?

Though no official list has been released, cities such as Bengaluru, Hyderabad, Pune and Ahmedabad are being considered due to their population size, rapid urbanisation and steep rent levels. These cities increasingly resemble traditional metros in terms of cost of living.

When will it happen?

The proposal is part of ongoing tax policy deliberations and may be finalised in the next financial year. Any change is likely to apply from the upcoming assessment cycle, benefiting taxpayers filing returns thereafter.

Why is the government reviewing HRA rules now?

Urban rents have climbed sharply over the last decade, driven by job migration, IT sector expansion and limited affordable housing. However, HRA norms have remained unchanged. Policymakers believe the existing structure no longer reflects today's housing realities in major non-metro cities.

How will this impact take-home pay?

A higher exemption limit would lower taxable income without changing salary structures. For many employees, this would mean higher monthly savings and better alignment between tax rules and real housing costs.

Quick Explainer | What is HRA?

• HRA is an allowance paid by employers to help employees cover rent.
• Tax exemption depends on salary, rent paid and city of residence.
• The benefit applies only under the old tax regime.

Bottom line:

If approved, the expanded HRA exemption could offer long-awaited relief to urban renters and mark a shift in how India defines and supports its modern metro cities.