11 July 2011
Sir, One of Our client had taken a direct deduction of 10% of the gross salary as House rent allowance.The deduction is lowest of the following 1)Actual HRA Recd. 2)50% or 40% 3)Excess of Rent Paid over 10% of Salary.
His contention is that he is taking 10% as deduction for the Rent Paid.According to me the exemption in 3 rd criteria is excess of rent paid over 10%.In case both both rent paid & 10% of salary are same he should get nil deduction. Is direct 10% of the salary is allowable as deduction.According to me not but let it confirm from you and also whether he had to pay the difference amount of Tax.Reply asap please.
11 July 2011
Yes you are right. Exemption for HRA is available @ lower of the criteria mentioned by you. However under 3. point Salary means Basic+DA(fixed).So if your client is claiming 10% of Gross Salary as HRA exemption, this is not as per the Provision of the Act. However, based on the calculation, the lower of the three criteria mentioned by you will be available as exemption.
11 July 2011
Direct 10% deduction is not allowed and also it is an exemption not deduction,when his total income is assessed then the same to be adjusted as per the exemption limits specified under section 10(13A)
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