Under section 10(13A) of the Income tax Act, 1961 any special allowance specifically granted to an employee by his employer to meet expenditure actually incurred on payment of rent of a residential accommodation occupied by the assessee is exemption to the extent as prescribed.

The section specifically prohibits this exemption in case if the house in respect of which rent is claimed as owned by the employee or the employee actually not incurred any expenses on rent payment.

Rule 2A of the Income Tax Rules, 1962 provides that the exemption in respect to HRA received shall be the least of the following;

Notes:

1. The exemption is available only for the period during which the rental accommodation was occupied by the employee.
2. Salary for HRA exemption purpose include Dearness Allowance (DA) if the terms of employment so provides.

Higher Exemption is not for all Metro Cities:
Please note that there is a widespread mis-conception that the higher percentage of 50% of salary as per clause (c) above is available for all metro cities. However as per Rule 2A the higher percentage is available only for Bombay, Calcutta, Delhi and Madras. It is notable that as per Ministry of Urban Development, Government of India, the number of metropolitan cities in India having million plus population has increased from 35 to 53 as per 2011 census.

Requirement of Pan of the Landlord:
As per CBDT circular 08/2013 , if the actual rent paid exceeds Rs. one lakhs, Pan of the landlord must be obtained to reported to employer for claiming HRA Exemption. In the absence of PAN a declaration is required to be obtained from the landlord.

Download ABCAUS Excel HRA Exemption Calculator Click Here >>

Related Updates:
HRA and Landlord’s PAN Requirement Click Here >>
Format of Non-PAN Declaration from Landlord Click Here >>