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Last modified / updated Feb. 04, 2016

Income Tax Act, 1961 : Income Exempted and Chargeable under the Head "Salaries"


26. Payment from a Provident Fund - under section 10(11)

Any payment from a Provident Fund to which the Provident Funds Act, 1925, applies or from any other notified provident funds set up by Central Government (Notification No. SO-2430 dt. 2.7.1968) in the Official Gazette is exempt.

27. House Rent Allowance - under section 10(13A)

Any allowance specifically granted to an assessee by his employer to meet expenditure incurred on payment of rent 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 house rent 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 or Madras, 50% of the salary due to the employee for the relevant period; or

(ii) Where such accommodation is situated in any other places, 40% of the salary due to the employee for the relevant period.

Click to calculate House rent exemption & taxable amount of house rent allowance

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 assessee subject to the limits laid down in Rule 2A, qualifies for exemption from income-tax. 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.

Click to calculate House rent exemption & taxable amount of house rent allowance

Links & Description of Contents

Scheme of Tax Deduction at Source from "Salaries"Income Chargeable under - "Salaries"Income Exempted Under The Head "SALARIES"
1 - Section 192 Provisions on Taxable Income
2 - Relief When Salary Paid in Arrear or Advance
3 - Claim of Deduction of Interest u/s 24 (b)- Income from House Property
4 - Due dates for payment of TDS
5 - Interest, Penalty & Prosecution for Failure to Deposit Tax Deducted
6 - Certificate for Tax Deducted (Section 203)
7 - TRACES
8 -Furnishing Particulars pertaining to perquisites
9 - Mandatory Quoting of PAN and TAN
10 - TDS on Income from Pension
11 - Income Chargeable Under the Head "Salaries"
12 - Definition OF "Salary"
13 - Perquisite - Rent Free Accomodation & Motor car provided by the Employer
14 - Perquisite - Gas, electricity & water for household consumption
15 - Interest free or concessional loans
16 - Value of Subsidized / Free food / non-alcoholic beverages
17- Transfer Grant Allowance
18 - Medical Reimbursement by the Employer
19 - Leave Travel Concession (LTC)
20 - Death-cum-Retirement Gratuity
21 - Commutation of Pension
22 - Leave Encashment
23- Retrenchment Compensation
24 - Amount received on voluntary retirement
25 - Sum received under a Life Insurance Policy
26 - Payment from a Provident Fund
27 - House Rent Allowance
28 - Pension to Gallantry Awarded
29 - Medical Treatment provided by Employer
30 - Entertainment Allowance
31 - Professional Tax











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