87. Rule 2A prescribes the quantum of exemption available, which will be the least of the following :

	Bombay/Calcutta/Delhi/Madras	Other Cities
	n Allowance actually received	n Allowance actually received
	n Rent paid in excess of 10% of salary	n Rent paid in excess of 10% of salary
	n 50 per cent of salary	n 40 per cent of salary

‘Salary’ for this purpose includes basic salary as well as dearness allowance if the terms of employment so provide. It also includes commission based on a fixed percentage of turnover achieved by an employee as per terms of contract of employment but excludes all other allowances and perquisites. In view of Explanation (ii) to rule 2A, basic pay, dearness allowance and commission are determined on ‘due’ basis in respect of the period during which rental accommodation is occupied by the employee in the previous year. Thus, emoluments of a period other than previous year are not to be considered, even though such amount is received (as well as taxed) during the previous year. Again, emoluments of the period during which rental accommodation is not occupied in the previous year are left out of computation. It is important to note that where rent paid is 10 per cent or less than 10 per cent of salary, no exemption will be admissible. Again exemption is denied where an employee lives in his own house, or in a house for which he does not pay rent.