HRA tax exemption guide: As the year ends, employees often have to deal with tax matters and investment declarations, especially those living in rented homes. The House Rent Allowance (HRA) can help with tax deductions. Yet, a common question is whether both rent receipts and agreements are needed for HRA claims.
Importance of rent receipts and agreements Akhil Chandna, a Partner at Grant Thornton Bharat, told ET that having only a rent agreement might not be sufficient for HRA exemption. Rent receipts are important to prove that the rent mentioned in the agreement has been paid. So, it’s recommended to keep both rent receipts and agreements to show to the assessing officer if needed.
Risk of HRA claim denial Tarun Kumar Madaan, Tax Head at Coherent Advisors points out the risk of the income tax department rejecting HRA claims in the absence of rent receipts. Mere execution of a rent agreement does not guarantee actual rental payments, especially if agreements are made within the family. The assessing officer may deny the claim if there is no supporting documentation proving the actual payment of rent, he points out.
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Documentation for ITR filing When filing your Income Tax Return (ITR), it’s important to keep evidence of claimed tax exemptions or deductions. The assessing officer may ask for proof during the ITR processing. Not providing necessary documents, like rent receipts, could result in the rejection of HRA tax exemption claims, even if you have a valid rent agreement.
Assessing officer’s discretion Abhishek Soni, CEO of Tax2Win.in, highlights that the assessing officer has the authority to accept, reject, or verify claims in an ITR. Although rent receipts boost the credibility of an HRA claim, the officer may also take other factors into account to assess its authenticity. Soni advises that it is recommended to collect rent receipts for payments made via the banking channel as well.
Recommended actions for employees To safeguard against potential HRA claim rejection, tax experts recommend employees to keep both rent receipts and rent agreements as documentary evidence. Rent receipts should include details such as the landlord’s name, address, payment amount, TDS deductions (if applicable), and the mode of payment. Additionally, affixing a revenue stamp is advised for monthly cash payments exceeding Rs 5,000.
Claiming HRA Tax exemption Employees can claim HRA tax exemption by submitting proof of rent payment to their employer, that will then reflect in Form 16. Alternatively, if proofs are not submitted to the employer, the exemption can be claimed during ITR filing. Proofs must be provided promptly if the assessing officer raises doubts to avoid excess TDS deduction. Mandatory PAN or Aadhaar submission to the employer is required if the annual rent exceeds Rs 1 lakh, and TDS must be deducted if monthly rent exceeds Rs 50,000, especially when dealing with non-resident landlords.
To benefit from HRA tax exemption, it’s important to handle paperwork carefully and follow the advice of tax experts. Keeping organised records and submitting necessary proofs promptly will help employees smoothly claim HRA tax benefits.
