Exemption of house rent allowance under clause (13A) - Eligibility and computation
Circular No. 90 was issued by the Central Board of Direct Taxes on 26 June 1972. Its subject is Exemption of house rent allowance under clause (13A) - Eligibility and computation.
This grants an exemption or a relief under a provision that allows one. Read the conditions attached: an exemption notification is construed strictly, and a condition missed is the exemption lost.
Brings 'dearness pay' into salary for computing the exempt house rent allowance. Rule 2A takes 'salary' from clause (h) of rule 2 of Part A of the Fourth Schedule, that is pay with dearness allowance where the terms of employment so provide, but excluding all other allowances and perquisites. Since the Department of Expenditure's Office Memorandum No. F. 1(34) E-II(B)/68 dated 18 January 1969 treats dearness pay as pay for pension, gratuity and compensatory allowances including house rent allowance for Central Government servants, the Board clarifies that for computing the exemption under rule 2A the term salary includes dearness pay; and the same applies to State Government servants who are paid dearness pay as Central Government employees are. Disbursing officers and State undertakings under State Government control are to be told, and to keep it in view for computing tax deductible from salaries.
A question had arisen on how the element of dearness pay should be treated under rule 2A in the case of Government servants, following the earlier explanation of section 10(13A) and rule 2A in the Ministry's letter dated 2 January 1967.
Exemption of house rent allowance under clause (13A) - Eligibility and computation
1. I am directed to invite reference to this Ministry’s letter No. F. 12/19/64-IT (A-I), dated 2-1-1967 [Clarification 2] wherein the manner in which the house rent allowance is to be treated as exempt from income-tax under section 10(13A) read with rule 2A of the Income-tax Rules, was explained.
2. As per rule 2A "salary" has the same meaning as assigned to it in clause (h) of rule 2 of Part A of the Fourth Schedule to the Act, i.e., @ "salary" includes dearness allowance if the terms of employment so provide but excludes all other allowances and perquisites. A question has arisen about the treatment to be given to the element of "dearness pay" in relation to rule 2A insofar as Government servants are concerned. With the issue of orders in the Government of India, Ministry of Finance (Department of Expenditure), O.M. No. F. 1(34) E-II(B)/68, dated 18-1-1969, "dearness pay" is considered as "pay" for purposes of pension and gratuity and compensatory allowance (including house rent allowance, etc.) in the case of Central Government servants. It is, therefore, clarified that for the purposes of calculating the house rent allowance that would be exempt under rule 2A, the term "salary" includes "dearness pay" also. Where State Government servants are being paid "dearness pay" as in the case of Central Government employee, the clarification given above will apply.
3. The above clarification may please be brought to the notice of all Disbursing Officers and State Undertakings under the control of the State Government; this may be kept in view, inter alia, for calculating income-tax to be deducted at source from "salaries".
Circular : No. 90 [F. No. 275/79/72-ITJ], dated 26-6-1972.
In a salary computation where the exempt house rent allowance is recomputed after adding dearness pay to salary.
Rules it names. Rule 2, 2A of the Income-tax Rules, 1962. The 1962 Rules were replaced by the Income-tax Rules, 2026, which renumbered nearly everything: a rule number quoted here almost never means the same rule today.
Source: the Income Tax Department’s own published text — its page for this instrument.
