26. House Rent Allowance [Section 10(13A) Read with Rule 2A]
(a) Persons living in rented houses
Any amount of House Rent Allowance received by the employee from his employer is exempted up to the least of the following limits
excess of actual rent paid over 10% of salary
an amount equal to 50% of salary where such accommodation is situated in any one of the following places, namely, Bombay, Calcutta, Delhi and Madras and 40% of salary in other towns ; or
actual amount of House Rent Allowance received.
(b) Persons living in their own houses or not paying any rent but getting HRA—
Full HRA received is taxable. No exemption under this provision. [Inserted by Taxation Laws (Amendment) Act 1984 w.e.f. from 1-4-76].
27. Any Allowance given for meeting Business Expenditure [Section 10(14)]
Any such special allowance or benefit, not being in the nature of a perquisite within the meaning of clause (2) of section 17 specifically granted to meet expenses wholly, necessarily and exclusively incurred in the performance of the duties of an office or employment of profit, as the Central Government may, by notification in the Official Gazette, specify, to the extent to which such expenses are actually incurred for that purpose.
any such allowance granted to the assessee either to meet his personal expenses at the place where the duties of his office or employment of profit are ordinarily performed by him or at place where he ordinarily resides, or to compensate him for the increased cost of living, as the Central Government may, by notification in the Official Gazette, specify, to the extent specified in the notification.
With effect from 1.4.89, i.e., assessment year 1989-90, the Direct Tax Laws (Second Amendment) Act 1989 has inserted the following proviso :
Nothing given in sub-clause (ii) shall apply to any allowance in the nature of personal allowance granted to the assessee to remunerate or compensate him for performing duties of special nature relating to his office or employment unless such allowance is related to the place of his posting or residence.
28. Interest Incomes [Section 10(15)]
The following interest incomes due to an assessee are exempt from tax :
(ia) Income by way of interest, premium on redemption or other payments on such securities, bonds, annuity certificates, savings certificates, other certificates issued by the Central Government shall be exempted if such notification is issued by Central Government in Official Gazette and shall be subject to such conditions and limits as prescribed in such notification.
(ii) In the case of an individual or a H.U.F. interest on such Relief Bonds as the Central Government may, by notification in the Official Gazette, specify in this behalf.
(jib) Interest on such Capital Investment Bonds held by individual or H.U.F. and so notified. The Central Govt. shall not specify any such bonds on or after 1-6-2002.
(iic) Interest on Relief Bonds issued and notified by the Central Government is fully exempted for an individual and HUF.
(iid) Interest on such notified bonds issued to non-residents and purchased by them in foreign exchange is fully exempted. With effect from 1-6-2002 the Central Govt. shall not notify any such bonds.
(iii) Interest on securities held by the Issue Dept. of the Central Bank of Ceylon, constituted under the Ceylon Monetary Law Act, 1949.
(iiia) Interest payable to any bank incorporated in a country outside India and authorised to perform Central Banking functions in that country on any deposit made by it, with the approval of the Reserve Bank of India, with any Scheduled Bank.
(iiib) Any interest payable to the Nordic Investment Bank, being a multilateral financial institution constituted by the Governments of Denmark, Finland, Iceland, Norway and Sweden, on a loan advanced by it to a project approved by the Central Government in terms of the Memorandum of Understanding entered into by the Central Government with that Bank on the 25th day of November, 1986.
(iiic) Interest payable to the European Investment Bank, on a loan granted by it in pursuance of the framework-agreement for financial cooperation entered into on the 25th day of November, 1993 by the Central Government with that Bank.
(iv) Interest payable—
(a) by Government or a local authority on money borrowed by it from sources outside India ;
(b) by an industrial undertaking in India on money borrowed by it from such financial institution in a foreign country as is approved in this behalf by the Central Government;
(c) by an industrial undertaking in India on any moneys borrowed or debt incurred in a foreign country in respect of its purchase outside India of raw materials or components, plant or machinery, to the extent of amount calculated at the rate approved by the Central Government in this behalf ;
(d) by the Industrial Finance Corporation of India established by the Industrial Finance Corporation Act, 1948 or the Industrial Development Bank of India established under the Industrial Development Bank of India Act, 1964 or Export Import Bank of India, or the National Housing Bank ; or the Small Industries Development Bank of India or the Industrial Credit and Investment Corporation of India (a company formed and registered under the Indian Companies Act, 1956) on any moneys borrowed by it from sources outside India, to the extent to which such interest does not exceed the amount of interest calculated at the rate approved by the Central Government in this behalf, having regard to the terms of the loan and its repayment
(e) by any other financial institution established in India or a banking company to which the Banking Regulation Act, 1940 applies (including bank or banking institution referred to in Section 51 of that Act), on any moneys borrowed by it from sources outside India under a loan agreement approved by the Central Government where the moneys are borrowed either for the purpose of advancing loans to industrial undertakings in India for purchase outside India of raw materials or capital plant and machinery or for the purpose of importing any goods which the Central Government may consider necessary to import in the public interest to the extent to which such interest does not exceed the amount of interest calculated at the rate approved by the Central Government in this behalf, having regard to the terms of the loan and its repayment
(f) by an industrial undertaking in India on any moneys borrowed by it in foreign currency from sources outside India under approved loan agreement. The loan agreement is to be approved by the Central Government of India before 1-6-2003. The exempted rate of interest is also to be fixed by the Central Government having regard to the terms of the loan and its repayment ; For the purposes of this sub-clause, the expression “Industrial undertaking” means any undertaking which is engaged in—
(a) the manufacture or processing of goods ; or
(b) the business of generation or distribution of electricity or any other form of power; or
(ba) the business of providing telecommunication services
(c) mining ; or
(d) the construction of ships ; or
(e) the operation of ships or aircrafts or construction or operation of rail systems.
(fa) by a schedule bank on deposits in foreign currency where the acceptance of such deposits by the bank is approved by Reserve Bank of India.
(g) by a public company whose main object is of carrying on the business of providing long-term finance for construction or purchase of houses in India for residential houses, on any money borrowed by it in foreign currency from outside India upto the rate prescribed by Govt.
For exemption u/s 10(15)(iv) (g) the term interest shall not include interest paid on delayed payment of loan or in default.
(h) by any public sector company in respect of such bonds or debentures. The holder of such bonds or debentures must register his name and the holding with that company.
- by Government on deposits made by an employee of the Central Government or a State Government in accordance with such scheme as the Central Govt. may frame and notify in Official Gazette, out of moneys due to him on account of his retirement whether on superannuation or otherwise.
(v) Interest on securities held by the Welfare Commissioner Bhopal gas victims Bhopal is the Reserve Bank’s SGL—AJC No. SLIDHO48 shall be fully exempted. Interest on any deposits (so notified) held for the benefit of victims of Bhopal gas tragedy held with Reserve Bank of India or any Public Sector Bank shall be fully exempted.
(vi) Interest on Gold Deposit Bonds issued under the Gold Deposit Scheme 1999 notified by Government.
(vii) Interest on Bonds
- issued by a local authority ; and
- specified by the Central Govt. by notification in the official Gazzete.
(viii) Interest on saving bank account in a post office is exempt
- upto ` 3,500 in the case of an individual account; and
- upto ` 7,000 in the case of a joint account.
(ix) Interest on bonds issued by State Pooled Finance Entity and specified by the Central Government by notification in the official Gazettee shall be exempted from Income Ta.
[ State Pooled Finance Entity’ means such entity which is set up in accordance with the guidelines for the Pooled Finance Development Scheme notified by the Central Government
in the Ministry of Urban Development ]