Under Section 10(13A) of Act any special allowance
specifically granted to an assessee by his employer to meet expenditure
incurred on payment of rent (by whatever name called) in respect of
residential accommodation occupied by the assessee is exempt from
Income-tax to the extent as may be prescribed, having regard to the area
or place in which such accommodation is situated and other relevant
considerations. According to Rule 2A of the Rules, the quantum of
exemption allowable on account of grant of special allowance to meet
expenditure on payment of rent shall be:
(a) The actual amount of such allowance received by the assessee in respect of the relevant period; or
(b) The actual expenditure incurred in payment of rent in excess of 1/10 of the salary due for the relevant period; or
(c) Where such accommodation is situated in
Bombay, Calcutta, Delhi or Madras, 50% of the salary due to the employee
for the relevant period; or
(d) Where such accommodation is situated in
any other places, 40% of the salary due to the employee for the relevant
period, whichever is the least.
For this purpose, "Salary" includes dearness allowance, if
the terms of employment so provide, but excludes all other allowances
and perquisites.
It has to be noted that only the expenditure actually
incurred on payment of rent in respect of residential accommodation
occupied by the assessee subject to the limits laid down in Rule 2A,
qualifies for exemption from income-tax. Thus, house rent allowance
granted to an employee who is residing in a house/flat owned by him is
not exempt from income-tax. The disbursing authorities should satisfy
themselves in this regard by insisting on production of evidence of
actual payment of rent before excluding the House Rent Allowance or any
portion thereof from the total income of the employee
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HRA Exemption Calculator.
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