No plan to grant metro city status to Bengaluru for HRA exemption, says Centre

Income Tax

The Centre has said there is no plan to grant “metro city” status to Bengaluru for reasons of house rent allowance (HRA) exemption, as the move would be against the policy to rationalise tax rates.

Responding to a query raised by Rajya Sabha member from Karnataka Ajay Maken, union minister of state for finance Pankaj Choudhary said, "There is no such proposal. It has been the stated policy of the government to rationalise the rates of taxation and move away from exemptions and deductions.”

Designating more cities as Metro cities and extending the benefit of a higher exemption limit on HRA to such cities would be contrary to the stated policy, the minister told the house on August 6.

Also, read: Demand for Bengaluru's metro city status for HRA exemption gets louder

"As per Rule 2A of the Income-tax Rules, 1962, a distinction has been drawn between the cities of Bombay (Mumbai), Calcutta (Kolkata), Delhi, and Madras (Chennai) on the one hand and other places on the other hand with respect to the amount which is to be excluded from the total income of an assessee in respect of the special allowance granted to an employee for residential accommodation as referred to in section 10(13A) of the Income-tax Act, 1961," he said.

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While 50 percent of salary due is considered for computing limits for the purposes of exemption under section 10(13A) of the Act for the four cities, for other places, the limit is taken as 40 percent of the amount of salary due, the minister said.

Bengaluru residents have been demanding HRA exemption for the past few years. The Karnataka government increased the guidance value by up to 30 percent from October 2023.

The increase in property guidance values, short supply of housing, rising construction costs, and companies issuing work-from-office mandates have driven up rentals in the tech capital.

A search of property and real-estate portals found that rents in Bengaluru are higher than in cities such as Kolkata and Chennai.

Many industrialists have also urged the government to include Bengaluru on the list of metros.

Also, read: Income tax slabs revised, standard deduction raised from Rs 50,000 to Rs 75,000 under the new tax regime in Budget 2024

Bengaluru has more than 5,500 IT/ITES companies and around 750 multinational companies, contributing around $85 billion to India's exports. It provides direct employment to over 1.2 million professionals and creates over 3.1 million indirect jobs.

Karnataka accounts for nearly 40 percent of the country's software exports, solidifying its status as a global IT powerhouse and the top destination for global capability centres, hosting about 40 percent of India's GCCs.