Bengaluru Salaried Employees to Receive Major HRA Tax Relief Under New Draft Rules
The salaried workforce of Bengaluru is poised for substantial tax relief with the draft Income Tax Rules, 2026, proposing to place the city in the category eligible for a 50% House Rent Allowance (HRA) exemption. This significant benefit, which has until now been reserved exclusively for Delhi, Mumbai, Kolkata, and Chennai, would bring Bengaluru on par with these traditional metros and raise the deduction ceiling from the current 40%.
Expanded List of Cities for Higher HRA Exemption
In addition to Bengaluru, the expanded list includes Hyderabad, Pune, and Ahmedabad. Once officially notified, this change is expected to provide financial assistance to lakhs of employees who are grappling with steep rental costs in India's technology capital. According to the Income Tax Act of 1961, salaried employees can claim HRA exemption in their salary tax computation, with the exempt amount being the least of the following three options:
- Actual HRA received
- 40% of basic salary plus dearness allowance (50% for employees working in metros)
- Excess of rent paid over 10% of salary
Tangible Financial Savings for Employees
While the difference between 40% and 50% may appear modest at first glance, it translates into meaningful financial savings. Preliminary calculations demonstrate that for a worker with a basic monthly salary of Rs 30,000, the higher exemption limit would increase the exempt amount by Rs 3,000. This adjustment could result in annual tax savings approaching Rs 10,000 for individuals in the 30% tax bracket.
In January 2024, The Times of India initiated a campaign advocating for Bengaluru's inclusion in the list of metro cities that qualify for the additional HRA exemption. Although the new draft rules do not explicitly designate Bengaluru as a "metropolitan city," they have incorporated its name into the list that previously contained only the four established metro cities.
Political Advocacy and Personal Campaign
Bangalore South MP Tejasvi Surya described the development as the culmination of years of persistent representation, calling it a "big bonus" for the city's residents. Surya has been actively campaigning for Bengaluru's addition to the metropolitan cities' list under Income Tax rules since 2020.
"Having closely witnessed how my father, a regular salaried employee, struggled with HRA deductions, this campaign held personal significance for me," Surya told The Times of India. "Bengaluru, as a city, merits inclusion in the list of metros, and I am pleased that I played a role in achieving this outcome. It has been a sustained and determined effort."
Policy Reversal and Symbolic Recognition
This decision represents a notable reversal of the position previously held by the Union Finance Ministry. In August 2024, as reported by The Times of India, Parliament was informed that adding more cities to the metro list would contradict the government's policy of rationalizing exemptions. That stance had drawn criticism from Karnataka leaders and industry representatives, who argued that the existing rules reflected an outdated perspective on urban India.
Despite being a major contributor to Income Tax collections and hosting one of the country's largest salaried populations, Bengaluru had remained outside this privileged tax bracket. The inclusion now carries considerable symbolic weight. Business leaders have long contended that global investors already regard Bengaluru as a metropolis, even if the tax code did not formally acknowledge this status.
With the implementation of the new rules, the city finally receives formal recognition that aligns tax policy with its substantial economic stature and the elevated living costs faced by its residents. Additionally, the draft rules permit a higher transport allowance of up to Rs 15,000 for employees with disabilities in the notified cities, further enhancing the benefits package.
