Under section 10(13A) of Income Tax Act, 1961, House Rent Allowance granted by an employer to the employee towards meeting expenses actually incurred on rent payment for the residential accommodation of the employee is exempt from income tax. This exemption is not available to an employee who is residing in his/her owned house.

The exemption is subject to limits and conditions prescribed in Rule 2 of Income Tax Rules. According to the rule the amount of exemption is least of the following:

(a)   The actual amount of such allowance received by the assessee in respect of the period during which the accommodation was occupied by the assessee during the financial year; or 

(b)   The actual expenditure incurred in payment of rent to the extent they exceed 1/10 of the salary due for the relevant period; or

(c)   An amount equal to:

(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.

Note: For this purpose, "Salary" includes dearness allowance, if the terms of employment so provide, but excludes all other allowances and perquisites.

CBDT Instructions to employers:
Central  Board  of  Direct  Tax  in its circular no 08 dated 10th October, 2013 on the subject of Income-tax deduction from salaries during the Financial year 2013-14 has emphasised that the disbursing authorities should satisfy themselves in this regard.

As per circular, employer should insist 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.

Requirement of production of Rent Receipt: 
As per circular, it has been decided that those employees who are paid house rent allowance upto Rs.3000/- per month will be exempted from production of rent receipt before the employer for claiming tax exemption.

However, it has been clarified that that the concession of non production of rent receipts for employee as above is only for the purpose of tax-deduction at source from salary, and, in the regular assessment of the employee, the Income Tax Officer apart from rent receipts, can make any enquiry which he considers fit for satisfying that the employee has incurred actual expenditure on payment of rent.

Requirement of reporting Permanent Account Number (PAN) of Landlord: 
It has been further required in the said circular that if the actual annual rent paid as claimed by the employee exceeds Rs 1,00,000 per annum ( or Rs. 8333.33 per month), it is mandatory for the employee to report PAN of the landlord to the employer. In case the landlord does not have a PAN, employee is required to obtain a declaration to this effect from the landlord along with the name and address of the landlord and such declaration should be filed by the employee with the employer.

No format of declaration has been prescribed, however a sample declaration would be as under:

DECLARATION
(See para 5.3.9 of CBDT Circular No. 08/2013)

1.    I …………………………(Name of Landlord) S/o …………………R/o …………………….(Full address of the Landlord with pincode) do hereby declare that I have given my hosing accommodation at ……………………. (address) on rent to Mr/Ms/Mrs ……………………………………. For a period of ……… months/years from …………….. (date) to ……………..(date) at a monthly rent of  Rs………… (amount) (Amount in words)

2.    Further I also declare that I do not have Income tax Permanent Account Number (PAN).

 

Place
Dated:                                                                                                 Name and Signature

 

Verification

I, the above named deponent do hereby declare that what is stated in para 1 to 2 is true to the best of my knowledge and belief and nothing has been concealed.

 

Place:
Dated:                                                                                                 Name and Signature

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