Exemption of house rent allowance under clause (13A) – Eligibility and computation

1. I am directed to invite reference to this Ministry’s letter No. F. 12/19/64-IT (A-I), dated 2-1-1967 wherein the manner in which the house rent allowance is to be treated as exempt from income-tax under section 10(13A) read with rule 2A of the Income-tax Rules, was explained.

2. As per rule 2A “salary” has the same meaning as assigned to it in clause (h) of rule 2 of Part A of the Fourth Schedule to the Act, i.e., @ “salary” includes dearness allowance if the terms of employment so provide but excludes all other allowances and perquisites. A question has arisen about the treatment to be given to the element of “dearness pay” in relation to rule 2A insofar as Government servants are concerned. With the issue of orders in the Government of India, Ministry of Finance (Department of Expenditure), O.M. No. F. 1(34) E-II(B)/68, dated 18-1-1969, “dearness pay” is considered as “pay” for purposes of pension and gratuity and compensatory allowance (including house rent allowance, etc.) in the case of Central Government servants. It is, therefore, clarified that for the purposes of calculating the house rent allowance that would be exempt under rule 2A, the term “salary” includes “dearness pay” also. Where State Government servants are being paid “dearness pay” as in the case of Central Government employee, the clarification given above will apply.

3. The above clarification may please be brought to the notice of all Disbursing Officers and State Undertakings under the control of the State Government; this may be kept in view, inter alia, for calculating income-tax to be deducted at source from “salaries”.

Circular : No. 90 [F. No. 275/79/72-ITJ], dated 26-6-1972.

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