HRA REBATE RULES

(9) Under Section 10(13A) of the Income-tax Act, 1961,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 Income-tax Rules, 1962, 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

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(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.

Though incurring actual expenditure on payment of rent is a pre-requisite for

claiming deduction under section 10(13A), it has been decided as an

administrative measure that salaried employees drawing house rent allowance

upto Rs.3000/- per month will be exempted from production of rent receipt.

It may, however, be noted that this concession is only for the purpose of

tax-deduction at source, and, in the regular assessment of the employee, the

Assessing Officer will be free to make such enquiry as he deems fit for the

purpose of satisfying himself that the employee has incurred actual

expenditure on payment of rent.

Further if annual rent paid by the employee exceeds Rs 1,80,000 per annum, it

is mandatory for the employee to report PAN of the landlord to the employer. In

case the landlord does not have a PAN, a declaration to this effect from the

landlord along with the name and address of the landlord should be filed by

the employee.

(10) Clause (14) of section 10 provides for exemption of the following allowances :-

(i) Any special allowance or benefit granted to an employee to

meet the expenses incurred in the performance of his

duties as prescribed under Rule 2BB subject to the extent to

which such expenses are actually incurred for that purpose.

(ii) Any allowance granted to an employee either to meet his

personal expenses at the place of his posting or at the place he

ordinarily resides or to compensate him for the increased

cost of living, which may be prescribed and to the extent as

may be prescribed.

However, the allowance referred to in (ii) above should not be in the nature of a

personal allowance granted to the assessee to remunerate or compensate him

for performing duties of a special nature relating to his office or employment

unless such allowance is related to his place of posting or residence.

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The CBDT has prescribed guidelines for the purpose of clauses (i) and (ii) of

Section 10(14) vide notification No.SO617(E) dated 7th July, 1995

(F.No.142/9/95-TPL)which has been amended vide notification SO No.403(E)

dt 24.4.2000 (F.No.142/34/99-TPL). The transport allowance granted to an

employee to meet his expenditure for the purpose of commuting between the

place of his residence and the place of duty is exempt to the extent of Rs.800

per month vide notification S.O.No. 395(E) dated 13.5.98.