Rule 2A-House Rent Allou.

ance

RuEe 2&
House Rent Allowance
t. Chargeability of HRA
Tt9 s-uqreme court in the case of Karamchari tJnion of India (2000) 243 ITn
14s
BCl, held that dearness allowance, ccA and HRA are ir*;bi; ir".irorrts in lieu of
salary'.
2. Exemption under section 10(13A) read with rule 2A
According to section 10(13A) of the Income Tax Act, read with ruie 2A
lncome Tax Rules, the least of the following is exempt.
of the
{a) aO% of salary i50% in case residential house is located in the cities of
Bombay, Calcutta, Delhi or MadrasJ.
(b) House rent allorvance recei'ed by the employee i. respect
of the period
during rT.hich resiclential accommodation is occupi"a t y u-pioy"o.
(cJ Actual rent paid milus 10olo of salary.
{i) Salaryfor the purposes ofsection 1O{7SA)
salarlz for the_purpose of section 10(13A) has the same meaning
as given in i.ulr 2
of Part A. Therefore, bonus or comrnission payabre t" ,.]"E-L", comrni,.,:s,r.,i
payable to branch rnanager in lieu of salary is not conside.oJ
us ,"turv for. llie
purpose of section 10(13,A.).
salary means basic salary and incrudes dearness allowance if th+ r,..;r
payment so provide. The.supreme Court in Gestetner Duplicatori r
{t}i i,it). f,. _ .,
t,!97?) 1i7 IT'R 1 (lc),ciarified that sarary aiso incluJer'"o*-ir.ion based ,:ir
rueo pelcenrage ol turnover aclrieved by an emplo-yee as per tlro;crrs
enrploymerrt. In case_.of Govcrnmeni emproyees,'-;;i".y ;.i;id lf
'dearrress pay'.-\ride Circular No. g0, dt. 26_b_1g22. utro irrclurrc
(ii) Employee in receipt of aneors of emoluments
The emoluments relatingto a period other than trre
rerevant previui.ilr .,.:.,. ,...,, ',
is [o lre ta-rcd on receipi b.asis-during suclr year,
are not lo be c."o];,.
ol' exernption under section l0t l3Ai. This is irr
fr,rp:l"raccording "i"*-"il*p
to rvlich basic salary. dearness alrowance
. . ., ,

::]:31 and ctmmission ar-,

ror rne purpose ot section 10-(13,t), to be determined on.,duc ]-lasis,,in
the period-during ";rsr;ir.:1 ,.
,which the rented house in que,stion i.
,Tplo{g" The implication , ., r ,
is that the emoluments relating t. trr"""""p]..i
periori duri.ij
which the rental accornmodation is not occupied is to
b; i&;;i-;i the amount of
salary'u'hich is to constitute the basis of gran'tingttu e*e-pi
allowance.
pu.i ]i$s rrrruse:, ..:
Constitutional validity of rule 2A
{iti)
According to CIT v. H.V. yazdi (1928) 114 rcn 14 Qal), rule 2,t does not run
counter provisions
to any of Act.
3.Conditions for exemption under section 10(1AA)

),o,9"u*pti91, vide Explanation to section 10[13A), is available where the assessee

tu lrves rn hrs o\^'n house, (ii) does not pay- .ny rent for the house
occupied
(iii).pay9 rent not exceeding rox?m r"r".y. rrr"-L"ti.-"."horr" rent by
|Ji,,"r
tnetr be subject to tax. will
[see crrru. Rajeshwar prasad Slso<1 2oz ITn 926 (Rai), patil
t Master Ilcome Tax Rules Guide, 2016
viiay Kumar v. union of India {19ss) ls1 ITn 48 (Karn) and, cIT v. p.D. singhania
(2006) 156 Totrman 504 (NI)]. The disbursing authorities responsible ior tax
deduction at source have been directed to satisfy themselves by insisting on
p-roduction of evidence of actual payment of rent before excluding ihe house-lent
allowance or any portion thereof from the total income of the empl6yee.
rncITv. uKBose (2013) 51 (I) ITCL221 {Del-HC): (201s) 2lzTannan 399 (Del)it
was held that unless there is material to show that there was no employer-
employee relaliols-hip, proper head of income to be applied is that of 'salaiy' ind
as_ such_, out of 'salary' head deduction under section 1b1raa; would therefore, be
allowed, being the amount debited to salary account.
wife
4. Payment of rent to
rn Bajrang Prasad Ramdharani v. Asstt. cIT ITA No. 7lslAhdlz71s (Ahd 'c,-Trib) :
2o13 ToxPub(DT) 2870- (A44-'rrib) it was observed that the assessee was paying rent
to his wife who was landlord and both were living together. The Tri-bunal"held
lhat since house was owned by wife of the assessee ind-tlre ass€ssee had paid rent
to her through bank transfer entry, the assessee had futfilled twin require-ments of
the provision, i.e., occupatior of the house and the paFnent of rent.^under these
circumstances, the assessee is entitled for exemptiorrunder section 1O(13A) of the
Act.
5. Production ofrent receipt
The disbursing authoritiei responsible for tax deduction at source have been
directed to satisfy themselves by insisting on production of evidence of actual
paYment of rent before
-excluding the house rent allowance or any portion thereof
fiom the total income of the employee.
As an administrative measure it has been decided that salaried employees drawing
house rent allowance upto { 3,0oo per month will be exempted from production oT
rent receipt. I! may, however, be noted that this concession is only foi the purpose
of tax-deduction at source, and, in the regular assessmert of tde emplojr"e; trr"
assessing officer will be free to make such enquiry as he deems fit fqr tile pu"pose
of satisfyiug himself that the employee has incurred actual expendiiurd on
pa5rment of rent.
Further if
annual rent paid by the employee exceeds < 1,oo,0oo per annum, i.t is
r-na1datg-ry
{or-the employee to report PAN of the landlord to the einployer. In case
the landlord does not have a PAN, a declaration to this effect frori the landlord
along with the name and address of the landlord should be filed by the
employee.-Vi de Circular No. 2 Ol 2 O 1 S, dt.' 2 -l Z -Z O I s.
\$fg Singfi-Verma v. Asstt. Crr poos) 2s (U) ITCL lsl tA$e-rrib) : (2oos) 17
D'rR {fura-Trib) ,63-it was held that as assessee did not produce reni receipt on a
ground of general ple-a that landlords generally do not iisue rcceipts in reslect of
house rent for fear of civil litigation that may arise at the ti-e of requirerient of
landlord to vacate the premises exemption under section 1o(13A) was not
allowable, more so when employer of ihe assessee did uot adiit ur.U
deducted tax at source. "1ri-
6. Rent paid to employee's HUF
An amount pald by an employee to his own HUF as rent is proper compliance for
-e-xsrnption under section 1o(13A).-see GBDT circular tettei rNo. 12/igl64-IT(B),
dL 22-2-1965 read with Circulu No. 11t, dt. 1B-s-1gZS.
7. Rent deposited in courts or with rent controller
Where the payments are deposite.jl in or with rent controller the exemption under
section 1o(13A) can be availed of in respect of such paJrment also. Foi availing of
exemption it is not necessary that rent must be paid to landlord.
., Rule ZA-House RentAllowance
B. House rent allowarce received try retired judges
has now been appointed by Government to
T1:::"j::*jr_:
any post cannot be held i:gr:,*hq
I'j,:"1exempt by virtue of section_2iD of th; u'igl, j;g""
co".t
fconditions of service) Act, r9s+.-Refer /ustic cha]ra Kendaiah i.'crc (2001) 119
Taxmon 511 (AP).
9. Assessee receiving ERA as weil as rent free accommodation
Assessee cannot claim twin benefits, i.e., HRA exemption
under section 1o(1sA)
and 'nil' value of accommodation perks ,"tiil;";Ai:i;"ce
perquisite value is worked out as inil, after
".,a". the housing
considsling tilis rental payment of
t 1'70 lakhs per monlf to the emproyer company uy irr".* is no rental
pa],Tnent made assessee-employee'r., tt"-"*fir"y*,
by lhe pl.p'.* o[ working out
exemption of HRA urder secrion ro(isa1 and, therefoill,i" iirufto;;";;-dd"
by the assessing office1 regallips trr" of assessee i"r
"t"i*
section 10[13A), is in^order.-vidJDv. crr under
v._Kurde;p i. K";;; irorrl
"1u*ption
47 (rD r.rcL
s35 (Ahd',D'-Trib) : {2012) 1s7 ITD sio 1ana,D,_Trib).
10. lllustration 1
A resides in Delhi- His basic salary is t 50,o00 p.a. He is in receipt
of < 10,000 as
house rent allowance and pays renl of { 12,000.
Least of the following will be exempt l
(a) { 25,000 l\Oo/o of salary (for Delhi)l
(b) t 10,000 [House rent allowance received]
{c) { 7,000 [t 12,000 - < 5,OOO, being excess of rent over 1.Oo/o of salary]
so t 7,000 will be exempt and the balance < 3,000 10,000
subject to tax deduction at source. F - t 7,000r will be
L1. Illustration 2
A- is in receipt of t 6.0,,000. p.a. as- basic salary and (
allowance. The renr paid bv him is t 20,000. H; ir
33,000 as house rent
arrears of salary relating to the preceding prevrous year.
J;; i" ,JJJiit of { ro,ooo as
(i) Assuming that the employee is residenf of
laipur
Amount exempt u*der section 1O(13A) is the least of :
(a) ( 24,000 [a0% of salary]
(b) < 33,000 [House tent allowance received]
(c) { 1a,o0o [t zo,o0o < 6,000, being
- excecs gf rent over Loolo of salary]
t 14,000 is, therefore' exempt. The balance t 6,000 20,000
io tax deduction at source. [( - < 14,000] is subject
The arrears of salary received win be ignored
in view of Explanation (ii) to rule 2A.
(ii) Assuming thoLt the eaployee is resident
of Mumbai
Least of the following will be exempt :
(a) ( 3o,oo0 [S0lo of salary]
[b) ? 33,OOO [House rent allowance received]
(c)t 14,000 [? zo,0oo - < 6,000, being excess of rent ovet loyoof salary]
t 14,000 is, therefore, exenf,pt.
12. Illustration J
A, resident of Ernakulam, is in receipt of ( 40,000 as basic
dearness allowance and ('9,ooo ."-n*1al**ission as also salar5r and t 5,5oo as
allowance. The rent paid byhim i; iloil;:- { 6,000 as house rent