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There's great news for salaried employees. If you work in a metropolitan city and spend a large portion of your salary on house rent, the government is preparing to offer you significant tax relief. Until now, the benefit of higher tax exemption on House Rent Allowance (HRA) was limited to only four major metropolitan cities, but a proposal has been made to expand this scope. This move is nothing short of a gift for millions of employees who are trying to increase their savings amidst rising rents and inflation.

What is the government's new proposal?
According to the current rules, if you live in Mumbai, Delhi, Kolkata, or Chennai, you are allowed to claim up to 50% of your salary as HRA under the old tax regime. For employees living in other cities, this limit is 40%. But now, things are about to change.

The government has decided to add four more major cities to this list. According to the proposal, employees living in Bengaluru, Hyderabad, Pune, and Ahmedabad will also be able to avail the benefit of a 50% HRA exemption. This means that these cities will now be given the same status as the existing 'metro' cities. If this rule is implemented, people living in a total of eight cities will be entitled to a 50% exemption, while the limit will remain 40% in the rest of India.

Why was this change needed?
The biggest reason for this change is the changing landscape of these cities. In the last decade, cities like Bengaluru, Hyderabad, and Pune have remained 'non-metro' only in name, while in reality, the cost of living there is no less than that of any metropolitan city.

These cities have now become major technology, manufacturing, and service hubs of the country. With the increase in employment opportunities, rents in residential areas have skyrocketed. In such a situation, the old limit of 40% was proving insufficient for employees living in these cities. This move by the government is an acknowledgment of the changes in urban demographics and the ground realities of these cities that are becoming economic hubs.

How will this affect tax savings?
The savings will be most significant for those who still opt for the old tax regime. Exemptions like HRA are not available in the new tax regime, so there will be no impact there. But if you are in the old regime, being in the 40% to 50% tax bracket means your taxable income will decrease, leaving you with more money in your pocket.

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