Higher HRA Likely for Bengaluru, Hyderabad, Pune, Ahmedabad: Key Details for Old Tax Regime Renters

The government is reportedly considering expanding the list of metro cities eligible for a Higher HRA exemption under the old tax regime. If approved, Bengaluru, Hyderabad, Pune, and Ahmedabad may soon join Mumbai, Delhi, Kolkata, and Chennai in qualifying for the enhanced 50% HRA exemption limit.

For salaried employees living in rented homes, this proposed Higher HRA revision could translate into meaningful tax savings and improved monthly cash flow. Here’s a clear breakdown of what renters should understand.

Why the Higher HRA Proposal Matters

Currently, only four cities are classified as metros for House Rent Allowance (HRA) calculations. Residents in these cities can claim up to 50% of Basic Salary plus Dearness Allowance (DA) as part of their HRA exemption.

In contrast, employees in non-metro cities are limited to 40% of Basic + DA. Despite rapidly rising rents and salary levels in cities like Bengaluru and Hyderabad, they continue to fall under the lower cap.

If implemented, the Higher HRA classification would allow renters in these growing urban centres to claim a larger portion of their salary as tax-free HRA under the old tax regime.

Also Read: NITI Aayog’s Rajiv Gauba Calls for Land Policy Reforms to Boost Housing Affordability

Understanding How Higher HRA Is Calculated

HRA exemption under the old tax regime is determined using the “least of three” rule:

1. Actual HRA received
2. 50% of Basic + DA (metro cities) or 40% (non-metro cities)
3. Rent paid minus 10% of Basic + DA

The proposed Higher HRA benefit would increase the second component from 40% to 50% for the newly added cities.

This seemingly small change can significantly reduce taxable income for high-rent payers.

Example: How Higher HRA Can Increase Tax Savings

Let’s consider a salaried professional earning ₹30 lakh annually.

Under labour code norms, Basic + DA must be at least 50% of total salary. That means:

• Basic + DA = ₹15 lakh
• HRA received = ₹9 lakh
• Annual rent paid = ₹9.6 lakh (₹80,000 per month)

Under Current 40% Rule:

40% of ₹15 lakh = ₹6 lakh
Maximum HRA exemption capped at ₹6 lakh

Under Proposed Higher HRA (50% Rule):

50% of ₹15 lakh = ₹7.5 lakh

This results in an additional ₹1.5 lakh exemption.

For someone in the 31.2% tax bracket, the tax saving from this Higher HRA increase could be approximately ₹47,000 annually.

That’s a meaningful improvement in disposable income.

Who Benefits the Most from Higher HRA?

The Higher HRA benefit primarily helps:

• Salaried employees paying high monthly rent
• Professionals in premium housing markets
• Families renting 2BHK or 3BHK apartments in major IT corridors
• Individuals opting for the old tax regime

With rental values in Bengaluru, Hyderabad, and Pune rising sharply, many tenants are already close to the earlier 40% cap. The new Higher HRA threshold allows them to claim more relief.

When Higher HRA May Not Increase Your Tax Benefit

Not everyone will see a gain from the Higher HRA revision.

If your rent is relatively low, the “rent minus 10% of Basic + DA” condition may limit your exemption.

For example:

• Annual rent = ₹6 lakh
• Basic + DA = ₹15 lakh
• 10% of Basic + DA = ₹1.5 lakh
• Eligible exemption = ₹4.5 lakh

Even if the metro cap rises to 50%, your exemption cannot exceed ₹4.5 lakh because of the third rule.

In short, the Higher HRA cap only benefits those whose rent levels justify it.

Impact of Higher HRA on Disposable Income

An increase in tax-free HRA directly reduces taxable income. This creates additional room in monthly budgets.

The extra savings from Higher HRA could be redirected toward:

• Systematic Investment Plans (SIPs)
• Emergency funds
• Health insurance upgrades
• EPF or PPF contributions
• Loan prepayments

Over time, the Higher HRA advantage may even tilt the rent-versus-buy decision slightly in favour of renting, especially in high-property-price markets.

Also Read: Supreme Court on RERA: Says It May Be ‘Better to Abolish’ Authority Serving Defaulting Builders

Important Considerations Before Claiming Higher HRA

Before planning around the proposed Higher HRA, renters should:

• Confirm eligibility under the old tax regime
• Maintain proper rent receipts and agreements
• Evaluate whether the old regime still offers better overall tax savings
• Review salary structure to understand Basic + DA composition

Since the Higher HRA benefit applies only under the old regime, taxpayers must carefully compare both tax systems before making a decision.

Final Thoughts

The possible expansion of metro classification to Bengaluru, Hyderabad, Pune, and Ahmedabad marks an important shift in tax recognition of rising urban rental markets. If implemented, the Higher HRA provision could provide significant relief to salaried renters dealing with increasing housing costs.

While the benefit will vary depending on rent paid and salary structure, those in higher rent brackets stand to gain the most. For old-regime taxpayers, the proposed Higher HRA adjustment may improve cash flow, strengthen financial planning, and offer meaningful annual tax savings.

As always, reviewing your tax strategy with updated rules in mind is the smartest next step.