X, who has opted out of the new tax regime under section 202(4) of the Income-tax Act, 2025, is…

Under section 11 read with Schedule III (Table: Sl. No. 11) of the Income-tax Act, 2025 and rule 279 of the Income-tax Rules, 2026 (formerly s.10(13A) of the Income-tax Act, 1961 and rule 2A), the house rent allowance excluded from total income is the least of: (a) the actual allowance received (₹ 2,000 per month); (b) the rent paid in excess of 10% of salary; and (c) 50% of salary (for Mumbai, Kolkata, Delhi, Chennai, Hyderabad, Pune, Bengaluru and Ahmedabad) or 40% of salary elsewhere. 'Salary' includes dearness allowance that forms part of salary under the terms of employment, so it is ₹ 70,000 + ₹ 10,000 = ₹ 80,000 per month, and 10% of salary is ₹ 8,000 per month. Since the rent paid (₹ 2,500) does not exceed ₹ 8,000, limb (b) is NIL, so the exempt portion is NIL and the whole allowance is taxable. ₹ 2,500 is the rent paid, ₹ 2,000 is the allowance received, and ₹ 1,000 does not follow from any limb. Under the default regime the allowance would in any case be fully taxable [section 202(2)(a)(i)].