Q.Ms. Y is employed in Bhubaneswar. During the previous year 2025-26, she received Basic Salary of ₹20,000 per month (her Dearness Allowance does NOT form part of salary for retirement benefits) and House Rent Allowance of ₹6,000 per month, and paid rent of ₹7,000 per month. Compute the exempt and taxable HRA for AY 2026-27, and state how Ms. Y's answer would differ from Mr. X's in the previous question, purely because of the city she works in.

Salary is charged to tax under Section 15 on whichever is earlier of the due basis or the receipt basis, so that no instalment of salary is ever taxed twice or escapes tax altogether; arrears not already taxed in an earlier year are taxed in the year they are actually paid. Section 17(1) then defines "salary" broadly, and this chapter works through the specific allowances the syllabus names. Basic Salary, Dearness Allowance, City Compensatory Allowance, Medical Allowance and Bonus are all fully taxable with no exemption. House Rent Allowance [Section 10(13A)/Rule 2A] is exempt up to the LEAST of actual HRA received, rent paid minus 10% of salary, and 50%/40% of salary depending on whether the city is one of the four named metros. Children Education Allowance is exempt up to ₹100 per month per child (maximum two children), and Transport Allowance is fully taxable for a general employee but exempt up to ₹3,200 per month for a specified specially-abled employee. Getting each allowance's own exemption formula right — and knowing which allowances have NO exemption at all — is the foundation every "compute Income from Salary" numerical in this chapter builds on.