HRA exemption glitch in ITR utility: What salaried taxpayers must do
New Delhi, Jul 16, 2025
'Taxpayers must calculate exemption based on residence, not workplace, to avoid notices' says experts.
The income tax department’s ITR utilities for Assessment Year 2025-26, released late last week, are facing a critical glitch that could impact lakhs of salaried taxpayers claiming House Rent Allowance (HRA) exemption.
Himank Singla, a chartered accountant, flagged the issue on X, highlighting that the utility wrongly asks taxpayers to enter their “place of work” instead of “place of residence” to compute HRA exemption under Section 10(13A). “If you live in a metro but work in a non-metro, entering your work city will reduce your exemption incorrectly and vice versa,” Singla wrote.
Under the Income Tax Act, 50 per cent of salary qualifies as HRA exemption for metro cities (Delhi, Mumbai, Chennai, Kolkata) and 40 per cent for non-metros. The exemption is determined by where the taxpayer lives, not where they are employed.
How are taxpayers impacted?
“This mismatch can lead to reduced HRA exemptions and inflate taxable income for those living in metros but working elsewhere,” said Vishwanathan Iyer, senior associate professor of Finance at Great Lakes Institute of Management, Chennai. “It may also trigger defective return notices from the tax department in cases of over-claimed exemptions.”
Employees opting for the old tax regime are particularly vulnerable, explained Naveen Wadhwa, vice-president at Taxmann. “Until the utility is fixed, taxpayers should enter their place of residence in the field asking for place of work to ensure accurate computation,” he suggested.
What to do if you’ve already filed?
Taxpayers who have already filed using the faulty utility can revise their returns. “You can file a revised return without penalty if done before the deadline,” said Iyer, adding that proof of residence and rent receipts must be retained. Wadhwa also advised filing a grievance with the Centralised Processing Centre (CPC) as an alternate remedy.
Wait for a fix or act now?
Experts are divided on whether taxpayers should wait for the department to release an updated utility. “It is safer to compute HRA manually and file now to avoid missing the due date,” said Suresh Surana, chartered accountant. Niyati Shah of 1 Finance, however, suggested waiting or using an offline JSON utility. “Filing now with incorrect data may result in reduced refunds or defective return notices, leading to double the effort later,” she cautioned.
Until the issue is resolved, taxpayers are advised to calculate their HRA exemption carefully based on their actual place of residence to avoid future tax complications.
[The Business Standard]
