CA Aashish Ramchand
In this article I have discussed provisions regarding exemption from House Rent Allowance –
As per Section 10 (13A) and rule 2A exemption in respect of house rent allowance is based upon the following –
1) An amount equal to 50 per cent of the salary, where the residential house is situated at Bombay, Kolkata, Delhi or Chennai, and an amount equal to 40 per cent of the salary where the residential house is situated at any other place.
2) House rent allowance received by the employee in respect of the period during which rental accommodations is occupied by the employee during the previous year.
3)The rent paid in excess of 10 per cent of the salary.
The least of the above three is exempt from tax. The following points should also be kept in view –
“Salary” for this purpose means basic salary and includes dearness allowance if the terms of employment so provide. It also includes commission based on fixed percentage of turnover achieved by an employee as per the terms of contract of employment. But it does not include any other allowance or perquisite.
The “salary” for this purpose shall be determined on “due” basis i.e. Basic salary, 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. It therefore follows that salary of a period, other than the previous year, is not considered even though such amount is received during the previous year and is taxable on receipt basis. Likewise salary of the period during which rented accommodation is not occupied in the previous year, is left out of the aforesaid computations.
Exemption is denied where an employee lives in his own house, or in a house for which he does not pay any rent or pays rent which does not exceed 10 per cent of salary.
The amount of exemption in respect of house rent allowance received by an employee depends upon the following –
a) “salary of the employee”
b) House rent allowance received
c) Rent paid
d) The place where the house is taken on rent
When these four conditions are same throughout the previous year, the exemption should be calculated on an “annual” basis. When however, there is a change in respect of any of the aforesaid factors, then the exemption shall be worked out on “monthly” basis.
As introduced in Budget 2020, if an individual assessee opt for concessional tax rate introduced in budget, then that person should forgone certain exemptions and deductions, House rent allowance is covered under that list. Hence, please keep in mind that if that assessee wants to opt for concessional tax rate then he cannot take advantage of HRA exemption.
Republished with Amendments
(Author is CA by profession & Co-Founder of Make My Returns (www.makemyreturns.com) & can be reached at firstname.lastname@example.org)
(Republished With Amendments)