Simplified Laws Guide to Taxation and Legal Concern
House Rent Allowance (HRA) is an allowance (part of the salary) given by an employer to an employee to meet the cost of renting a home. HRA is a taxable receipt in the hands of the employee. However, section 10(13A) of the Income Tax Act grants exemption in respect of any HRA received if certain basic conditions are satisfied. This article is about the basics of HRA, taxation and other related issues. Hope this helps.
- To claim HRA exemption, you should get the allowance from the employer. Check the appointment letter and confirm your salary structure contains House Rent Allowance. If HRA is not part of your salary, you can’t claim any tax exemption.
- To claim HRA exemption, you must actually stay in a rented house and pay the rent. If you are staying in own house, you are not eligible for tax exemption.
- If you get Rs.15000 per month as HRA, will the entire amount be exempt from tax? No. The amount exempt will be the least of the following (a) Allowance actually received or (b) Rent paid in excess of 10% of salary (i.e., basic pay+ Dearness Allowance) or (c) 50% of the salary for metro cities (40% of the salary, if the house is situated in cities other than metros)
- How should one know that you pay rent? Will a self-declaration do? No. You have to submit a proof of payment of rent (basically a rent receipt signed by the owner of the house) to your employer. However, if you are drawing HRA upto Rs.3000 per month, you are exempt from producing rent receipt to the employer.
- Can I pay rent to my father or to my wife and claim tax exemption? Technically, Yes. The exemption is available even if the house is owned by a close relative be it wife or husband or father or mother and for which rent is regularly paid. There is a case law Bajrang Prasad Ramdharani Vs CIT wherein the rent paid to wife is allowed. I will write about this case law in a separate post. Having said that, you can avoid such ‘tax planning’ methods, because the Income Tax department may disallow the benefit during assessment. (you may win the case at appeal stages).
- Should l collect the PAN details of the owner/landlord? Yes. If the total rent paid by you is over Rs.1 Lakh per year, you are obliged to collect PAN card copy/PAN details and submit it to the employer.
- What if I have not submitted the details of rent payment to the employer? Can I claim the exemption while filing the return? Yes. You can claim HRA exemption while filing the return and avail tax refund. Ensure that the rental agreement, rent receipt, PAN card copy of the landlord is obtained. You may have to produce the proof before the Income Tax Officer as and when called for.
- What happens if the landlord is not having PAN? You can obtain a declaration (in a plain paper) and claim tax exemption. Your employer may refuse to accept this letter as valid proof and deny the tax benefit but you can claim the exemption while filing the return.
- Can I claim both HRA and Interest on housing loan (towards self occupied house) benefit? HRA exemption is available, if you live in a rented accommodation and pay rent. Interest on housing loan benefit is available if it is a self occupied house. So, how can both take place at the same period? Is it possible? Maybe possible, if you are staying in a rented house near to your workplace and visit your own house on weekends or if you are working in one city and your own house is situated in another city.
10.Both myself and my wife are working. Can both of us claim HRA exemption? Suppose, you pay Rs.30,000 per month as rent, both of you can’t claim Rs.30000 each! Double claim is not allowed. However, if each of you pay through your bank account (or two separate cheques), say Rs.15000 each, you can claim HRA exemption. Maybe, while entering into the rental agreement, specify this aspect in clear terms in order to avoid problems.
11. I have lived for 8 months in a rented house and then moved to own house. Can I claim HRA exemption? Yes. You can claim HRA exemption for 8 months (not for full year) However, you can claim Interest paid on house loan, if any for the full year.
12. f I am staying in Paying Guest (PG) accommodation, can I claim HRA? Yes. You can, but the extent of rent paid towards accommodation. You have to separate the food cost from the rent and get the rental receipt from the landlord/ the service provider.
13. Can I pay rent by cash? Yes you can. However, it is advisable to make bank transfers or cheque payments.
Thought for the day
Service is the very purpose of life. It is the rent we pay for living on the planet.
Is it Required to submit all 12 months rent receipts to employer to claim exemption?????