According to estimates, salaried people anticipate tax relief in the form of lower tax rates, adjusted income tax slabs, and even larger deductions ahead of the Union Budget 2024. Furthermore, as per a report by a credible source, one such alleviation is the addition of more non-metropolitan cities to the list for the 50% house rent allowance (HRA) exemption.
Under the previous income tax system, employees who receive HRA and pay rent for their housing are eligible to seek a tax exemption on this benefit. Whether or whether the employee resides in a metro area for tax reasons affects the amount of the exemption. Nonetheless, the report stated that the entire HRA benefit is taxable if the employee does not reside in a rental property.
The lowest of the following is the amount of HRA that can be claimed as tax-exempt:
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Received actual HRA
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The amount of actual rent paid less 10% of the base pay
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Greater than 50% of the base pay (in metro areas) or 40% of the base pay (in non-metro areas).
At the moment, rental homes in Bengaluru, Delhi, Mumbai, Kolkata, and Chennai are exempt from HRA by 50%, while homes in other places are subject to a 40% charge. According to the paper, there is an urgent need to reevaluate how we define metropolitan and non-metropolitan areas given the increase in population and economic importance of cities. In addition to the National Capital Region (NCR), Bengaluru, Pune, and Hyderabad are recognized as metropolises under the Constitution (Seventy-Fourth Amendment) Act of 1992. But according to the research, these cities' antiquated tax policies keep the HRA tax exemption for paid individuals at forty percent.
Living outside of major cities usually results in paying more in taxes with your salary. For instance, a person in Bengaluru may pay average rentals that are greater than those in Chennai or Kolkata, where they are categorized as "metros" for taxation reasons.
Residents in rapidly developing non-metros, according to the Income Tax Act, might pay higher rents due to urban growth. Yet, they get fewer tax breaks for rent compared to metros. With more people moving to these areas for work, experts urge the government to rethink rent exemption rules to ease taxpayers’ financial burden, the report said.
The Income Tax Act states that rents in quickly rising non-metros may increase due to urban growth. However, compared to metros, they receive lesser tax incentives for rent. In order to lessen the financial burden on taxpayers, experts advise the government to reconsider the rent exemption laws as more individuals relocate to these locations in search of employment, according to the study.
