I paid rent to my mother for half the year and moved cities in October. Payroll allowed me nothing. How much of my house rent allowance is actually exempt, and will the claim survive being looked at?
The client is a salaried quality manager with a logistics company, assessed at a ward in Pune. For financial year 2024-25, assessment year 2025-26, he drew basic pay of Rs 1,20,000 a month from April to September 2024 and Rs 1,80,000 a month from October 2024 after a transfer and promotion - Rs 18,00,000 for the year - with house rent allowance of Rs 15,000 a month in the first half and Rs 72,000 a month in the second, Rs 5,22,000 in all, and a performance bonus of Rs 3,00,000 paid in March 2025. Until 30 September 2024 he lived in Pune in a flat owned by his mother and paid her Rs 55,000 a month, Rs 3,30,000 in all, the first two months in cash and the rest by bank transfer, under an unregistered leave and licence agreement that is undated. From 1 October 2024 he lived in Mumbai in a flat taken from an unrelated landlord at Rs 38,000 a month, Rs 2,28,000 for the six months, on a registered agreement with monthly bank transfers. In January 2025 he gave payroll the prescribed declaration covering the Mumbai tenancy with the landlord's permanent account number, and for the Pune period rent receipts signed by his mother carrying no permanent account number. Payroll allowed nothing at all: the Form 16 shows the exemption as nil and tax deducted on the whole allowance. He filed his return on 26 July 2025 in the old regime, computed the exemption on the year as a whole at Rs 3,78,000 and claimed a refund of Rs 1,18,000. An intimation under s.143(1) dated 12 May 2026 disallowed the exemption in full, extinguished the refund and raised a demand of Rs 9,850. What is not on the file: any notice of a proposed adjustment before that intimation; his mother's return for the year, so nobody yet knows whether she has offered the rent; any electricity bill, bank record or employer record placing him at the Pune flat between April and September; any challan or statement for tax deducted on the rent paid to her; and the declaration the reporting rules require where a landlord has no permanent account number.
Do the computation twice before answering anything - once on the year as a whole, the way the return did it, and once period by period - because the two produce different numbers and the correct one is the lower. Annually the claim is Rs 3,78,000; taken in the two periods the salary, the rent and the city actually occupied, it is Rs 2,10,000, because the first half is capped by the small allowance he was drawing then. A reply that defends the filed figure hands the officer an easy Rs 1,68,000, and the part of the claim that is genuinely at risk - whether the rent to his mother was really paid - is then argued from behind, by a taxpayer whose arithmetic has just been shown to be wrong.
The exemption only exists in the old regime. The library records that the concessional individual regime is now the default and that it removes house rent allowance along with leave travel allowance and most Chapter VI-A deductions, and that a salaried person with no business or professional income takes the old regime in the return itself and may switch year to year so long as the return is on time. Its own account of that default is candid about its limits - the sources it used disagree about the assessment year from which the default applies, and the slab table on it comes from commentary rather than from statutory text - so confirm the year's position from the return and the acknowledgement rather than from the entry. Here the return went in on 26 July 2025 in the old regime, so the exemption is available and the whole dispute is about quantum and proof. Had it gone in late, the same entry records commentary that a belated return is filed in the new regime whatever else was done, which would have ended the argument before it started. The library's schedule of salary exemptions makes the same point from the other side, listing this allowance among those unavailable in the new regime.
The library states the exemption as the least of three figures - the allowance actually received, the rent paid less ten per cent of salary, and half of salary in a metropolitan city or forty per cent elsewhere - and says in terms that the limbs are to be run separately for each period in which the rent, the salary or the city changed, rather than on the year as a whole. That instruction decides this file. Run annually, the claim comes to Rs 3,78,000, because averaging the two halves hides the fact that the allowance drawn in the first half was small. Run period by period, the first half is capped by the allowance actually received, Rs 90,000, and the second by rent less ten per cent of a much larger salary, Rs 1,20,000, so the defensible figure is Rs 2,10,000. On these numbers the percentage limb does not bind in either period on either classification, so the city question does not affect the answer here - which is fortunate, because the library states the metropolitan and non-metropolitan percentages without carrying the list of cities that qualify. On the base for the ten per cent, the library records a decision holding that a performance bonus does not form part of salary for this computation, the governing definition being the narrower one the rule picks up rather than the general definition of salary; keeping the March bonus out preserves about Rs 30,000 of the second period's figure. Treat that as an alternative rather than a foundation: it is a Tribunal order the library marks unverified, the editor could not obtain the order's own paragraphs, and the underlying question is contested between High Courts, with one line holding that bonus does form part of salary and nothing showing it overruled.
The corpus holds one decision on rent paid to a parent, and it went against the taxpayer. The exemption was refused for three years and the arrangement called a sham, on a combination of facts: no written tenancy, rent paid wholly in cash with no matching withdrawals from the claimant's account, the mother having filed no return for years and having ignored the enquiry notices, and an inspector reporting that the claimant in fact lived in her own flat a few minutes away, which she had returned as self-occupied while claiming the allowance for living elsewhere. The burden was put squarely on the claimant on the footing that these are facts within her own knowledge, and rent receipts written by the mother, standing alone, were held not to inspire confidence. Against that the library holds a decision on rent paid to a spouse in which the proposition that a person cannot pay rent to a family member was rejected as unsupported by anything in law, the flat standing registered in her name, her sources for the purchase proved and never doubted, and the rent declared by her in returns the department had accepted. Read together the line is genuineness, not relationship. The library's own account of what the department looks for is a written tenancy predating the payments, monthly bank transfers, the rent disclosed in the relative's return for the same years, and something independent placing the claimant at the rented address. This file fails on three of those four. Fix what can still be fixed - her return for the year, her bank statements showing the credits, the society's records, the electricity account, the address carried on the bank and employer records for April to September - and be candid about the two months paid in cash rather than papering them.
The library records that an individual paying rent for a building exceeding Rs 50,000 for a month or part of a month to a resident, where the larger rent provision does not already apply, must deduct - with no deduction account number, on his own permanent account number - and that the deduction is made once, at the time of credit or payment of rent for the last month of the previous year, or for the last month of the tenancy where the property is vacated earlier. Rs 55,000 a month crosses that line and the tenancy ended on 30 September 2024, so the obligation fell due then and nothing was done. The challan-cum-statement runs within thirty days from the end of the month of deduction and the certificate within fifteen days after that. The library also records that where the landlord has given no permanent account number a higher rate applies but the deduction is capped at the rent payable for that last month, which is the position here, since payroll was given receipts carrying no such number. Do not quote a rate out of this library: it records the figure as unresolved between the department's own reproduction of the section and its current tutorial page, and says in terms to check the section for the year. This is a separate default carrying its own interest and daily fee and it does not by itself defeat the exemption - but rent above the threshold with no deduction, no statement and no landlord permanent account number is the combination that invites the officer to ask whether the rent was paid at all.
The library sets out that the employer's duty under s.192 is to deduct on the estimated income under the head for the financial year, that this is an estimate and not an assessment, and that a High Court has held an employer who deducts on an honestly and fairly made estimate is not in default under the recovery provision even where the estimate later turns out to be wrong, incorrectness alone carrying no inference of dishonesty. The mirror image is the point for the employee: the payroll figure is one person's forecast on the material he was given, and it does not determine what is exempt. The same entries tell you what payroll was entitled to want. The evidence rule requires the claim to be furnished in the prescribed employee declaration with the landlord's name, address and permanent account number where the year's rent exceeds Rs 1,00,000, and the library records that this declaration is the first document a withholding officer asks for, because it is the record of what the employer was told. The employer here held it for one tenancy and not the other, which explains the refusal without justifying its extent - nothing entitled him to disallow the half of the year that was fully documented. The library holds the Board's annual salary circular for this very financial year, the document payroll was meant to work from, and records honestly that the circular's own paragraphs on that declaration and on employees with more than one employer could not be extracted from the file fetched, so the employer's obligations are described from the rules and the section rather than from the Board's words.
The library holds a High Court judgment that the first proviso to s.143(1)(a) is mandatory - no adjustment shall be made unless the proposed adjustment is first intimated to the assessee in writing or electronically and he is given a chance to respond - and that judgment refused the department's answer that a response would have been futile, pointing out that the position at the date of the response need not be the position at the date of the return. It also holds a Tribunal order quashing an intimation in which a processing centre cut down a claimed exemption with no prior notice, treating the omission as going to the root of the validity of the proceedings rather than as a technicality, and rejecting the argument that a full hearing in the first appeal cures it. And it holds a High Court judgment that summary processing is for adjustments that are apparent and incontestable, so an issue that is genuinely debatable must be taken up in scrutiny instead. Whether rent was in fact paid to a parent is a question of fact no processing centre can decide off the return. So the first request is for the notice of proposed adjustment and the response record; if none went out, that is the first ground of appeal, and it should be taken as a ground of validity rather than argued together with the merits.
The claim as filed is Rs 1,68,000 too high, because it was computed on the year as a whole. The library holds a High Court judgment that there is no estoppel against the statute and that a taxpayer is not shut out by his own return where the return is wrong in law: tax may be collected only by authority of law, the officer is obliged to apply his mind to the facts disclosed in the return and assess in accordance with the law holding the field rather than simply accept the figure offered, and where a person is over-assessed through mistake, misconception or bad advice the authorities are to assist him so that only legitimate tax is collected. That principle runs both ways here - it is the answer if the employer's nil figure is treated as conclusive against the claim, and it is the licence to come down from a figure of one's own that cannot be supported. On mechanics, the Supreme Court has held that a claim cannot be made to the Assessing Officer except by a revised return, but said in the same order that this does not touch the appellate power; a High Court has since held that the first appellate authority and the Tribunal have jurisdiction to entertain a claim not made in the return, the live question being discretion rather than power. So if the window for revising the return has closed, the corrected computation goes in at the appeal by a written application with the working annexed and an explanation of why the original figure was wrong.
The processing objection usually succeeds where no notice of proposed adjustment went out, and the result is that the intimation is set aside and the return is processed again properly, not that the claim is allowed - so the case comes back to the evidence within months. On the merits the two halves of the year separate. The Mumbai half, on a registered agreement with an unrelated landlord, monthly bank transfers and the landlord's permanent account number on the employee declaration, is usually allowed once someone actually looks at it. The Pune half turns on two things and nothing else: whether the mother has offered the rent in her own return for the same year, and whether anything independent places him in that flat between April and September. If both hold, the corrected figure of Rs 2,10,000 is generally sustained; if the mother has returned nothing and occupation cannot be shown, the first half goes, and the two months paid in cash are the part that is hardest to defend. The withholding default on the rent to his mother is a separate demand with interest and a daily fee, and it is not answerable on these facts.