Budget 2024: These cities should be included in 50% HRA tax exemption list

India Budget 2024: Finance Minister Nirmala Sitharaman should include more tier-2 cities in the list of metro cities for the purpose of calculation of exemption for House Rent Allowance (HRA), says EY in its pre-Budget 2024 wish list.

Interim Budget 2024: According to EY, tier-2 cities like Hyderabad, Gurgaon, Pune, Bengaluru, Ahmedabad should be included in the list of metro cities that allow for higher HRA exemption for Income Tax filing.

Union Budget 2024 : Finance Minister Nirmala Sitharaman should include more tier-2 cities in the list of metro cities for the purpose of calculation of exemption for House Rent Allowance (HRA), says EY in its pre-Budget 2024 wish list. According to EY, tier-2 cities like Hyderabad, Gurgaon, Pune, Bengaluru, Ahmedabad should be included in the list of metro cities that allow for higher HRA exemption for Income Tax filing.

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The HRA you receive from your employer isn't entirely tax-exempt. The tax-exempt part of the HRA is the lesser of the following:
a) The actual HRA from your employer
b) 50% of the 'salary' if living in metro cities (Delhi, Mumbai, Chennai, Kolkata), or 40% for other cities

c) The surplus rent paid annually over 10% of the annual 'salary'
'Salary' includes basic salary, dearness allowance (if it's part of the retirement benefit), and commission received as a percentage of turnover. Other allowances like special allowance aren't considered for computing the tax-exempted HRA amount.
EY’s Interim Budget 2024 wishlist from a personal taxation housing perspective reads:

• Include tier 2 cities (Hyderabad, Pune, Bengaluru, Ahmedabad, Gurgaon etc.) in the list of metro cities for HRA exemption calculation purposes (from 40% to 50% of basic salary)
• Remove the cap of Rs 2 lakhs towards the set-off of house property loss against other heads in the same year
• Enhance the existing limit for deduction of interest on housing loan for self-occupied property from Rs 2 lakhs to at least Rs 3 lakhs

EY has also emphasised the need to overhaul the capital gains tax structure. EY lists the following asks with regards to the capital gains tax:

• Standardise the holding period and bring uniformity in tax rates across various asset classes
• Enhance the extant tax-free LTCG ceiling on sale of equity shares/equity oriented mutual funds/units of a business trust from Rs 1 lakh to Rs 2 lakhs
• Similar to immoveable property, provide a tolerance limit of at least 10% of actual consideration for normative taxation purposes for transfer of unlisted shares

EY also says that FM Sitharaman should look to increase the tax-free threshold for gifts from Rs 50,000 to Rs 100,000. Additionally, measures should be taken to expedite disposal of pending appeals.
“Provide clarity on taxation of employer’s contribution to specified funds in excess of Rs 7.5 lakhs and ‘accretions’ thereon – clarify aspects such as identification of fund to which excess contributions are made, meaning of ‘accretions’ in case of Superannuation Fund/NPS and computation methodology,” says EY.

FM Sitharaman is expected to present the Interim Budget 2024 on February 1, 2024. A full year Budget for the fiscal year 2024-25 will only be presented some time in June-July by the new government after the Lok Sabha polls 2024.
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