Relief to lakhs: B’luru added to 50% HRA exemption list in I-T draft rules

Bengaluru: Salaried workforce of Bengaluru is set for a significant tax relief with the draft Income Tax Rules, 2026, proposing to place the city in the category eligible for 50% House Rent Allowance (HRA) exemption.The benefit, until now reserved for Delhi, Mumbai, Kolkata and Chennai, would bring Bengaluru on par with the traditional metros and raise the deduction ceiling from the present 40%. Hyderabad, Pune and Ahmedabad have also been included in the expanded list.
The change, once notified, is expected to help lakhs of employees coping with steep rentals in the technology capital. As per the I-T Act, 1961, salaried employees can claim exemption of HRA in their salary tax computation, and the the least of the following is exempt: "Actual HRA received; 40% of basic salary plus dearness allowance [50% in case of employees working in metros]; excess of rent paid over 10% of salary".The difference may appear small but translates into tangible savings. Back-of-the-envelope calculations show that for a worker with a basic salary of Rs 30,000 a month, the higher limit would raise the exempt amount by Rs 3,000, offering annual tax savings close to Rs 10,000 for those in the 30% bracket.In Jan 2024, TOI ran a campaign for Bengaluru's inclusion in the list of metro cities, which offers the additional HRA exemption. While the new draft rules don't explicitly call Bengaluru as a "metropolitan city', it has added its name in the list that so far had only the four metro cities of Delhi, Mumbai, Kolkata and Chennai.Bangalore South MP Tejasvi Surya, describing it as the result of years of representation, said it was a "big bonus". Surya has been advocating that Bengaluru be added to the metropolitan cities' list under I-T rules since 2020."Having closely seen how my father, a regular salaried employee, struggled with HRA, this campaign was also personal to me. Bengaluru, as a city, merits to be added to the list of metros and I'm happy that I had a role to play in it. It has been a persistent effort," Surya told TOI on Tuesday.The decision marks a reversal of the position the Union finance ministry had taken barely 18 months ago. In Aug 2024, as reported by TOI, Parliament was told that adding more cities to the metro list would run against the govt's policy of rationalising exemptions. That stand had drawn criticism from Karnataka leaders and industry voices who argued that the rules reflected an outdated view of urban India. Bengaluru, despite being a major contributor to I-T collections and home to one of the country's largest salaried populations, remained outside the privileged bracket.The inclusion carries symbolic weight. Business leaders have long said that global investors already treat Bengaluru as a metropolis even if the tax code did not. With the new rules, the city finally receives formal recognition that aligns policy with its economic stature and the daily costs borne by its residents. The draft rules also allow higher transport allowance of up to Rs 15,000 for employees with disabilities in the notified cities.