Centre maintains that it cannot yet grant ‘Metro’ status to the city. Union Minister of State in the Ministry of Finance, Pankaj Chaudhary on Tuesday, explained that under Rule 2A of the Income-tax Rules, 1962, a distinction exists between the cities of Mumbai, Kolkata, Delhi, and Chennai, and other places regarding the special allowance for residential accommodation under section 10(13A) of the Income-tax Act, 1961.
For the four designated metropolitan cities, 50% of the salary was considered for computing the exemption limits under section 10(13A). However, for other cities, including Bengaluru, this limit has been set at 40%.
Minister Chaudhary further clarified that there is no proposal to change this policy. “It has been the stated policy of the Government to rationalise tax rates and move away from exemptions and deductions. Therefore, designating more cities as metro cities and extending the benefit of a higher exemption limit on HRA to such cities contradicts the stated policy,” he said.
For a long time, there have been demands to recognise Bengaluru as a Metropolitan City for House Rent Allowance (HRA) tax exemptions under income tax laws. The inclusion of Bengaluru would allow residents to claim a 50% exemption on their
salary equivalent to HRA, similar to the existing four designated Metropolitan Cities.
This change would significantly benefit residents by reducing their taxable income and providing relief in an increasingly expensive housing market. However, the Centre’s current stance remains firm. Despite Bengaluru’s rapid urbanisation and its crucial role as an economic and technological hub, the government has chosen not to revise the tax exemption rules to include it as a metro city.
The debate over Bengaluru’s status highlights the ongoing tension between local growth dynamics and national fiscal policies. As Bengaluru continues to expand, the push for metro city recognition may gain further momentum, potentially prompting future reconsideration of tax policies to better accommodate the city’s unique growth trajectory and economic contributions.
Sources said that classifying Bengaluru as a metro city for House Rent Allowance (HRA) purposes would offer notable advantages to both employees and employers, according to industrialists. The current system determines the percentage of HRA that can be claimed as tax-exempt based on whether a city is classified as a metro or non-metro. Industrialists argue that by categorising Bengaluru as a metro, employees would be eligible for a higher percentage of tax-exempt HRA, resulting in significant tax savings.
“This change would be especially beneficial for those renting accommodations, as it would help them better cope with the high living costs. Moreover, employers would find it easier to attract and retain skilled employees in the competitive job market by offering more appealing job packages that include the revised HRA benefits.
Reclassifying Bengaluru as a metro would also acknowledge the city’s substantial growth and development, putting it on par with other major metropolitan areas. This adjustment would contribute to a more stable and satisfied employee base, benefiting both workers and businesses in the city,” said Sathish Jois, an entrepreneur.
