House Rent Allowance means, if you are a salaried person and staying in a rented accommodation, then you can claim tax exemption for the rent paid. The rent can be partially or fully tax exempt
House Rent Allowance (HRA) is exempted under section 10(13A) of the Income Tax Act.
House Rent Allowance rules and regulations
Under House Rent Allowance rules and regulations, you will get exemption up to a minimum of the following 3 amounts:
Actual House Rent Allowance (HRA) received by the employee in the year.Rent paid by the employee for his accommodation in excess of 10% of his salary.50% of the salary, if he stays in any of the 4 metro cities of Delhi, Mumbai, Kolkata or Chennai; otherwise, 40% of the salary.
The salary for this calculation means the basic salary which includes dearness allowance if the terms of employment provide for it and commission based on a fixed percentage of turnover achieved by the employee.
Please note that if the employee is staying in his own house or not paying any rent, he will not be eligible for the above tax exemption.
Most salaried individuals get confused when it comes to claiming exemption on one’s House Rent Allowance (HRA) while filing tax returns. However, here is a lowdown to make the process simple for the taxpayer.
It is important to know that you can claim HRA exemption benefit only when you are living in a rented house. Those who live in their own house cannot avail tax exemption benefit on HRA.
Much before you get your Form 16, the exempt HRA amount can be seen in the tax projection statement provided to you by your employer at the beginning of the financial year. The employer deducts the HRA from salary. When it comes to filing of ITR, you can view the deduction in Part B of your Form 16.
Declare the rental to the employer
The best way to get HRA exemption is to mention the amount in the declaration form provided to you by your employer at the start of a financial year. Dhamodharan, Financial Counsellor with LIC OF INDIA said it is advisable that the employee claims HRA through the payroll to avoid a mismatch between the tax return and Form 26AS. In case the employee is unable to claim the same through the employer, then he or she can claim the same while filing the yearly tax returns. “This can be done by computing the amount of exemption for HRA and reflecting the same in the place provided in the salary appropriate schedule in the return form,” he said.
“While seeking tax benefits on HRA, if one fails to justify the deduction of the amount from the total income it can attract penal consequences under the provisions of the Income-tax Act, 1961. The amount of HRA, in any case, will get reflected in Form 16 issued by the employer,” said Dhamodharan, Financial Counsellor with LIC OF INDIA
Documents required for claiming HRA benefits
The deduction for House Rent Allowance (HRA), under section 10(13A), is generally availed by the employee through the payroll by providing requisite supporting documents and also, meeting the necessary conditions. To claim HRA, you need to have relevant documents with you. The supporting documents for this purpose would be
rent agreement,
rent receipts.
If the amount of rent exceeds Rs 1 lakh per annum the PAN of the landlord is also necessary.
In case the landlord does not have a PAN, a declaration to this effect should be obtained from him, along with his name and address details.
An employee generally has to submit all relevant documents with their company Human Resources department. However, the tax authorities do not require an employee to submit documents to them. “While supporting documents are not required to be submitted with the tax return, it is necessary to ensure the same is readily available in case there is a query from the tax office/Central Processing Centre (CPC),” said Dhamodharan.
Also, individual taxpayers not receiving a house rent allowance (could be non-salaried individuals as well) could claim a deduction for their rental expenses based on Section 80GG subject to specified limits.
Do not claim false HRA while filing ITR
You should not file wrong information in ITR forms otherwise you may have to pay a penalty. Dhamidharan said that a new provision introduced vide Finance Act, 2016, brought in the concepts of underreporting of income and misreporting of income.
“Mis-reporting of income has been defined to mean, inter alia, misrepresentation or suppression of facts or claim of expenditure not substantiated by any evidence.
Therefore cases involving the wrong claim of exemption HRA by furnishing false rent receipts, where rent cannot be justified would clearly attract penalty at the rate of 200% of the amount of tax payable,” he said.
Can you claim HRA if you own a house?
The answer to this question is both – Yes and No.
You cannot claim house rent allowance (HRA) if you are staying in your own house.You can claim HRA if you are staying on rent, not in your own house.
Can pay rent to employees' mother/brother/parents and claim HRA?
Yes, employee can claim HRA if you are paying rent to your mother, brother or parents but they need to show the income as Income under House Property.
Can HRA be claimed by both the husband and wife?
Yes, HRA can be claimed by both the husband and wife if:
Both husband and wife, are paying rent to the landlord.Husband and wife are giving separate receipts for the rent paid to the landlord
The husband and wife can claim HRA exemption proportionately but both can not claim the entire rent paid to landlord.
What is 80GG claim deduction for HRA?
Section 80GG applies for HRA claim deduction under the following conditions:
If your employer does not include HRA in your salary, andSelf employed people
You can still claim deduction under 80GG.
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