House Rent Allowance is any special allowance granted specifically to an assessee by his employer to meet expenditure actually incurred on payment of rent by whatever name called, in respect of residential accommodation occupied by the assessee. 

So, house rent allowance presupposes the following: 

1.     Granted by employer to employee 

2.     Employee pays rent for residential accommodation 

3.     The residential accommodation should be occupied by the assessee. 

The exemption given to house rent allowance is contained in Section 10(13A) of the Income Tax Act. It provides exemption to the extent as may be prescribed and having regard to the area or place at which such accommodation is situated and other relevant considerations. 

As per the section, exemption is denied in the following cases: 

1.     If the house occupied by the assessee is owned by him. 

2.     The assessee has not incurred expenditure on payment of rent in respect of the accommodation occupied by him. 

As per Rule 2A of the Income Tax Rules, House Rent Allowance is exempt to the least of the following: 

(i)              40% of Salary (50% of salary in case residence is located in the cities of Mumbai, Kolkata, Delhi or Chennai) 

(ii)             House Rent Allowance received by the employee for the period during which residential accommodation is occupied by him. 

(iii)           Actual rent paid minus 10% of salary. 

No Exemption if employee resides in own house: House Rent Allowance paid to an employee who is living in his own house does not qualify for exemption. As per Section 10(13A), only the expenditure actually incurred on payment of rent in respect of residential accommodation occupied by the assessee (subject to conditions) qualifies for exemption. 

The disbursing authorities should satisfy themselves in this regard by insisting on production of evidence of actual payment of rent before excluding House Rent Allowance or any portion thereof from the total income of the employee. 

Employee to produce certain documents/receipts before DDOs: Section 192(13) read with Rule 26C makes it mandatory for DDO to obtain the following details/documents from the employees claiming HRA exemption:  

a.     Rent paid to the landlord 

b.     Name of the landlord 

c.     Address of the landlord 

d.     PAN or Aadhar Number, as the case may be, of the landlord 

Employee has to submit the above details in Form 12BB if the aggregate rent paid during the financial year exceeds Rs.1,00,000.