Big HRA boost on cards: Govt plans to expand 50% exemption to some metro cities

In a move that could bring significant tax relief to salaried employees living in major urban centres, the government has proposed expanding the list of cities eligible for a higher House Rent Allowance (HRA) exemption under the old tax regime.

Currently, salaried taxpayers living in four metros—Mumbai, Delhi, Kolkata and Chennai—are eligible for an HRA exemption of up to 50% of salary, while those in other cities can claim 40%.

Under the proposed revision, the 50% HRA exemption would be extended to four more major cities: Bengaluru, Hyderabad, Pune and Ahmedabad. Employees residing in all other cities would continue to remain eligible for a 40% exemption.


If implemented, the revised structure would be as follows:

• 50% of salary for residential accommodation in Mumbai, Kolkata, Delhi, Chennai, Hyderabad, Pune, Ahmedabad and Bengaluru
• 40% of salary for residential accommodation in all other locations

The proposed expansion reflects the government’s attempt to modernise HRA provisions in line with changing urban demographics and sharply rising residential rents in key economic and employment hubs. Cities such as Bengaluru, Hyderabad and Pune have emerged as major technology, manufacturing and services centres over the past decade, witnessing steep increases in housing costs.

The proposal is expected to be particularly beneficial for salaried employees in these cities who continue to opt for the old tax regime, where HRA remains a key exemption. Under the new tax regime, most exemptions, including HRA, are not available.