As the Budget approaches, taxpayers anticipate potential tax benefits, rebates, and enhancements. Despite the upcoming vote-on-account, taxpayers seek relief in the form of reduced tax burdens.

Common expectations for the Budget include changes in income slabs, tax rates, and deductions. However, specific areas, such as the income tax exemption for house rent allowance (HRA), hold significant potential for tax benefits, especially for the salaried class.

Many employers provide HRA as part of their employees' compensation packages. Tax exemption on HRA is available if the employee pays rent for their accommodation. However, there's a discrepancy based on the location where the taxpayer resides – whether it's a metro city or not, for tax purposes.

Understanding this anomaly is crucial, as it can lead to lower tax exemption amounts. Residents of metro cities often receive higher exemptions compared to those in non-metro areas. This distinction affects the tax burden of salaried individuals significantly.

It's crucial to understand that if you're not living in a rented house, the House Rent Allowance (HRA) you receive as an employee is fully taxable. However, there are provisions in the Income-tax Act, 1961, specifically Section 10(13A), that offer tax exemption for HRA. Here's how it works:

  1. The amount of HRA that can be claimed as tax-exempt is determined by the following three factors and the lowest amount among them is considered:
  2. a. The actual HRA received.
  3. b. The actual rent paid minus 10% of the basic salary.
  4. c. 50% of the basic salary for metro cities or 40% of the basic salary for non-metro cities.

Currently, for rented houses in Delhi, Mumbai, Kolkata, and Chennai, 50% of the HRA is exempt from tax. For other locations, the exemption stands at 40%. It's important to note that this classification has remained unchanged for over three decades.

As time goes on, cities are growing bigger in terms of population and economy. This means it's important to rethink which cities should be considered metro or non-metro. According to the Constitution (Seventy-fourth Amendment) Act, 1992, there are seven cities classified as metro cities: National Capital Region (NCR), Mumbai, Kolkata, Bangalore, Pune, Hyderabad, and Chennai. However, if we look at overall development including population, infrastructure, industry, and economy, there are more cities that could be added to this list, such as Ahmedabad, Surat, and Kanpur.

These cities are rapidly expanding and offering many opportunities for education and employment. Take Bengaluru, for example, often called the 'Silicon Valley of India' because of its advancements in Information Technology (IT). It's now the country's largest IT hub. Similarly, Pune is known for its prestigious educational institutions and universities. The fast growth of industries and the economy is attracting more and more people to these cities.

The HRA (House Rent Allowance) exemption for salaried taxpayers in certain cities remains lower, at 40%, due to outdated tax laws. This means residents in these cities might end up paying a higher percentage of their income in taxes compared to those in metro cities. For example, someone in Bengaluru might pay higher rent on average compared to someone in Kolkata or Chennai, which are considered metro cities for tax purposes.

Residents in rapidly growing non-metro cities face the impact of high rents due to urbanization and receive lower tax benefits in terms of HRA exemption. As more people move to these non-metro cities for work, the government should reconsider the rules for claiming HRA exemption to ease the financial burden on taxpayers.

It's time to revise HRA regulations and classify other deserving cities as "metro" to reduce tax costs for salaried individuals. For millions living in these cities, fair HRA exemptions are crucial for financial security and recognition of their contributions to the economy. Their voices need to be heard, and their cities' true status acknowledged.