Draft Income Tax Rule 279: Limits for Schedule III

Rule 279 of the Draft Income-tax Rules, 2026 prescribes the limits for exemption of special allowance referred to in Schedule III (Table: Sl. No. 11), relating to house rent allowance (HRA). The exempt amount is determined as the least of three values: the actual allowance received by the assessee during the relevant period; the amount by which the rent actually paid for residential accommodation exceeds ten per cent of the salary due for that period; or a prescribed percentage of salary based on the city where the accommodation is located. For employees residing in specified metropolitan cities such as Mumbai, Kolkata, Delhi, Chennai, Hyderabad, Pune, Ahmedabad, and Bengaluru, the limit is fifty per cent of salary, while for any other location it is forty per cent of salary. For the purposes of this rule, “salary” includes dearness allowance if it forms part of the terms of employment but excludes other allowances and perquisites. The “relevant period” refers to the duration during the tax year during which the residential accommodation was occupied by the assessee.

Extract of Rule No. 279 of Draft Income-tax Rules, 2026

Rule 279

Limits for the purposes of Schedule III (Table: Sl.No 11)

(1) The amount which is not to be included in the total income of an assessee in respect of the special allowance referred to in Schedule III (Table: Sl.No 11) shall be the least of the following

(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 for the relevant period; or

(c) in case of an assessee employed in the location mentioned in column (B) in the table below, an amount equal to such percentage of salary, mentioned in column (C) thereof, due to the assessee in respect of the relevant period,—

(2) In this rule

(a) “salary” includes dearness allowance, if provided for under the terms of employment, but excludes all other allowances and perquisites.

(b) “relevant period” means the period during which the said accommodation was occupied by the assessee during the tax year.