Under section 10(13A) of the Act, 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 Rules, the quantum
of exemption allowable on account of grant of
special allowance to meet expenditure
on payment
of rent shall be the least of the following:
(a) The actual amount of such allowance received by the assessee in respect of the
relevant period i. e. the period during which
the accommodation was occupied
by the assesse during the financial year;
or
(b) The actual expenditure incurred in payment of rent in
excess of 1/10 of the
salary due for the relevant period; or
(i) Where such accommodation is situated in Bombay , Calcutta , Delhi
(ii) Where such accommodation is situated in any
other places, 40% of the
salary due to the employee for the relevant
period,
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 assesses 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 1,00,000 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.
