"Complete Exemption Of House Rent Allowance Through Proper Tax Planning"

 

Under the Income Tax Act the maximum amount of house rent allowance permitted to be enjoyed by an employee tax-free is ..

  1. upto 50°/o of the salary in Mumbai, Kolkata, Delhi or Chennai and
  2. upto 4O°/o in other towns.

This is further subject to the fulfillment of other conditions of Rule 2A. One of the conditions is that the employee has to meet part of the cost of the house rent equal to IO°/o of the salary himself.

Thus, the employee has to so plan his house rent allowance that after meeting the cost of his rent himself to the extent of 10% of his salary the entire amount of house rent allowance becomes exempt from income tax.

If an employee is able to properly plan this aspect of the matter he can get the entire house rent allowance free of income tax. This is illustrated in the example as given in Illustrations 1 & 2.

Illustration-1 :
An employee stationed in Mumbai draws a monthly salary of 5,000. The employer is agreeable to grant him a house rent allowance upto 2,500 per month. He has taken a flat at a monthly rent of 3,000 after considering the various rules governing the exemption of house rent allowance. Thus, the maximum amount of house rent allowance which is exempt from income tax in the case of this employee as per Rule 2A would be the least of the following sums:

(a) The actual house rent allowance received by the employee, i.e. 2,500 per month;

(b) The excess of the house rent paid over 10% of the salary, namely, 3,000
--- 500 per month i.e., 2,500 per month;

(c)  2,500 i.e., 50% of 5,000 per month as the employee is stationed in Mumbai.

Illustration-2 .
A General Manager of a Private Limited Company in New Delhi is in receipt of salary of 25,000 per month. The employee is provided with a company leased accommodation the rent for which paid by the company is 18,000 p.m. Furniture of the value of 2 lakh has also been provided at his residence.

The valuation of perquisite for the AY 201 3-2014 in terms of Rule 3 would be as under

1. Perquisite value as per rule 3(1) @15% of 3 lakh
salary == 3,750 per month & yearly  =                                    45,000

2. Perquisite value in respect of furniture
@ 10% of original cost of Furniture =                                    20,000

-------------------
Total value of perquisite                                                      65,000

Thus, by proper tax planning the employee has been able to take a flat at a rent not exceeding 3,000 which has enabled him to enjoy this entire house rent allowance of ‘ 2,500 per month completely tax-free. In this manner, by a proper application of the knowledge of the Income Tax Rule 2A in the matter of exemption of house rent allowance, an employee can take full benefit of the concession so provided by the Income Tax Law.
----------------------------------------------------------------------------------
 
 
MORE TOPICS ....
THE DEFINITION OF 'SALARY' Income
Special Compensatory Allowances Exempted From Tax Upto some Limit
Conveyance And Transport Allowances Are fully Exempted From Tax
Allowances for A Helper,Uniform, Academic Research are Tax-Exempt
Free Medical Facilities Not A Perquisite in Certain Circumstances
Exemption Of LTA Or LTC (Leave Travel Assistance Or Concession)
Excess Contribution By Employer To a Employees RPF A/c is Taxable
No Benefit For Free Gas, Free Watchman And Gardener From Employer
Sweeper,Gardener,Watchman,Personal Attendant Benefit To Employee
Gas And Electric Energy Or Water Benefit To The Employee
Free Or Concessional Education Facilities Benefit To The Employee
Tax Planning For Rent-Free Residential Accommodation
Personal Or Private Journey Free Of Cost Benefit To The Employee
Interest-Free Loan Benefit To The Employee
Holiday Travelling, Touring, Etc. Benefit To The Employee
Other Fringe Benefits To The Employee by Employer
Employer Can Pay Tax On Perquisites On Behalf Of The Employees
Employees Stock Options by Employer
Exemption Of House Rent Allowance Through Proper Tax Planning
How An Employee Can Get Tax-Free Car For Personal Use
Perquisite Valuation Of Car For Office And Personal Use
Deduction For House Rent U/S 80GG
How Company Directors Can Save Money By Proper Tax Planning
Travelling And Daily Allowances fully Exempted From Income Tax
Children’s Educational And Hostel Allowances Exempt From Tax ..
 
 
Get.. Tally.ERP9 Book + GST Practical Assignment @ Rs.550 Tally.ERP9 Book Online Order Tally.ERP9 Book Content
 
© 2018 : IncomeTaxManagement