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Exemption of House Rent Allowance under I.Tax Act

(Querist) 17 March 2009 This query is : Resolved 
Dear Sir,

Kindly specify the rebate of House Rent Allowance under Income Tax Act.

Keshav Kumar Saxena
A V Vishal (Expert) 17 March 2009
Dear Mr Saxena:

The rebate of House Rent Allowance u/s. 10(13A)of the Income tax Act, 1961 is given in detail hereunder:

Any special allowance specifically granted to an assessee by his employer to meet expenditure actually incurred on payment of rent (by whatever name called) in respect of residential accommodation occupied by the assessee, to such extent as may be prescribed having regard to the area or place in which such accommodation is situate and other relevant considerations.

Rule 2A prescribes the quantum of exemption available, which will be the least of the following :

Allowance actually received
Rent paid in excess of 10% of salary
50 per cent of salary

Other Cities
Allowance actually received
Rent paid in excess of 10% of salary
40 per cent of salary

‘Salary’ for this purpose includes basic salary as well as dearness allowance if the terms of employment so provide. It also includes commission based on a fixed percentage of turnover achieved by an employee as per terms of contract of employment but excludes all other allowances and perquisites. In view of Explanation (ii) to rule 2A, basic pay, dearness allowance and commission are determined on ‘due’ basis in respect of the period during which rental accommodation is occupied by the employee in the previous year. Thus, emoluments of a period other than previous year are not to be considered, even though such amount is received (as well as taxed) during the previous year. Again, emoluments of the period during which rental accommodation is not occupied in the previous year are left out of computation. It is important to note that where rent paid is 10 per cent or less than 10 per cent of salary, no exemption will be admissible. Again exemption is denied where an employee lives in his own house, or in a house for which he does not pay rent.
adv. rajeev ( rajoo ) (Expert) 18 March 2009
formula for calculation of HRA

House Rent allowance received
rent paid - 10% of salary ( basic + DA if it is for reitrement benefit)
20% of basic salary or 40% incase of metropolitin cities.
which ever is less will be the deduction available u/s 10
PALNITKAR V.V. (Expert) 18 March 2009
Very useful information. Thanks a lot Mr. Rajeev and Mr. Vishal.
A. A. JOSE (Expert) 18 March 2009
Enriching clarifications given by Mr.Rajeev and Mr.Vishal and I join Mr.Palnitkar to thank them for the same.
rajesh garg (Expert) 18 March 2009
Rajiv suggestion is according to act.
Hiralal Das (Expert) 04 April 2009
I agree with the opinions of my learned members friend. You may follow them which should be better to solve the problem.

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