House rent allowance (HRA) SECTION 10(13A)

 For the purposes of calculating the house rent allowance that would be exempt under rule 2A, the term ‘salary’ includes ‘dearness pay’ also—Circular : No. 90 [F. No. 275/79/72-ITJ], dated 26-6-1972.

It is necessary for granting the exemption under section 10(13A) that the employee should have actually incurred the expenditure on rent. For purposes of deduction of tax, therefore, the disbursing officer should ensure that the employee concerned has in fact incurred the expenditure on rent. The payment of rent should be verified through rent receipts in the cases of all employees.

House rent allowance paid to a person, who is living in his own house or in a house for which he does not actually pay any rent, is not exempt from tax in any circumstances—Letter : F. No. 12/19/64-IT(A-I), dated 2-1-1967.

 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. 3,000 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 - Circular No. 798, dated 30-10-2000 [Para 5.2-(9)].

http://law.incometaxindia.gov.in/DitTaxmann/IncomeTaxActs/2002ITAct/circulars2002/cirsec10(13a).htm

Limits for the purposes of section 10(13A).

 The amount which is not to be included in the total income of an assessee in respect of the special allowance referred to in clause (13A) of section 10 shall be—

   

(a)   the actual amount of such allowance received by the assessee in respect of the relevant period; or

(b)   the amount by which the expenditure actually incurred by the assessee in payment of rent in respect of residential accommodation occupied by him exceeds one-tenth of the amount of salary due to the assessee in respect of the relevant period; or

(c)   an amount equal to—

         (i)   where such accommodation is situate at Bombay, Calcutta, Delhi or Madras, one-half of the amount of salary due to the assessee in respect of the relevant period; and

        (ii)   where such accommodation is situate at any other place, two-fifth of the amount of salary due to the assessee in respect of the relevant period,]

 (d)   [***]

whichever is the least.

Explanation : In this rule—

               (i)   “salary” shall have the meaning assigned to it in clause (h) of rule 2 of Part A of the Fourth Schedule;

             (ii)   “relevant period” means the period during which the said accommodation was occupied by the assessee during the previous year.]

           

http://law.incometaxindia.gov.in/dittaxmann/incometaxacts/2005itact/rules002a.htm