Evolution and Impact of House Rent Allowance (HRA) Exemptions on Urban Salaried Employees Under Old Tax Regime and New Tax Regime

ABSTRACT One of the crucial and inevitable aspects of the monthly budget of an urban employee is housing expenditure. Within the background of a fast-growing urban population in India and the continuously growing housing rental rates, House Rent Allowance (HRA) has been a life-saving taxable on many workers who are on salaries. This paper discusses the development of HRA exemptions since 1974 since the statutory inception of the exemption until the current transformative tax measurement of 2020 and 2023 and how a dual taxation regime in India has completely changed the financial calculus of urban employees. The paper, following the changes in legislation, projecting the Rule 2A formula in terms of income profiles, and using data available on the urban housing market, illustrates that the financial disadvantage incurred by middle-income urban salaried workers when the HRA exemption is eliminated in the new concessional tax regime (Section 115BAC) is measurable. The paper also shows the structural weaknesses of the current policy formulation and provides specific recommendations towards the implementation of more equity in how housing expenditure is treated by tax. Keywords: HRA Exemption, Section 10(13A), Section 115BAC, Old Tax Regime, New Tax Regime, Urban Salaried Employees, Income tax India, Housing allowance, Tax planning, and Rule 2A.