Dearness allowance included in salary for HRA exemption where employment terms expressly provide for its payment.

Dearness allowance forms part of "salary" for computing exemption under section 10(13A) read with Rule 2A where the terms of employment expressly provide for its payment. The statutory definition in Rule 2(h) of Part A of the Fourth Schedule includes such allowance, and an employer's different internal basis for other benefits does not change that meaning for house rent allowance exemption purposes. The cited precedent did not justify excluding contractually provided dearness allowance, so the allowance was correctly included in salary for TDS computation on HRA.

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Issues: Whether dearness allowance payable to employees, when stipulated in the terms of employment, forms part of "salary" for computing the exemption under section 10(13A) of the Income-tax Act, 1961 and thereby affects the tax deductible at source on house rent allowance.

Analysis: The exemption under section 10(13A) and Rule 2A of the Income-tax Rules, 1962 is computed with reference to "salary". The relevant definition in Rule 2(h) of Part A of the Fourth Schedule to the Income-tax Act, 1961 includes dearness allowance where the terms of employment provide for its payment. The appointment terms in the present case expressly provided for dearness allowance at rates prescribed by the employer from time to time. The fact that the employer may have adopted a different internal basis for other benefits does not alter the statutory meaning of salary for purposes of Rule 2A. The cited precedent did not support exclusion of dearness allowance where such allowance is contractually provided.

Conclusion: Dearness allowance was rightly included in salary for working out the exemption under section 10(13A), and the assessee's challenge failed.

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