Salaried individuals receiving a house rent allowance as part of their salary can claim HRA exemption if they pay rent for their accommodation. This exemption lowers their taxable salary, either wholly or partially. But one question that usually arises is how one should claim full HRA exemption. Are both rent receipts and a rent agreement required as proof to make the claim?
The HRA amount is shown in the salary slip of an employee and also the tax projection statement given by the employer at the start of the financial year. As it is part of the salary, the HRA amount deduction features in Part B of Form 16 provided by the employer.
Read More: Tax saving options under New Tax Regime most taxpayers may not be aware of
Is rent agreement enough to claim HRA exemption?
A rent agreement is important but not sufficient on its own to claim HRA exemption for tax purposes. Rent receipts serve as proof that the employee has paid the rent as specified in the agreement. Therefore, it’s advisable to keep both rent receipts and the rent agreement with you, as you may be asked by the assessing officer to submit them if any discrepancies are found by the Income Tax Department.
Read More: Income Tax Return 2024: Taxpayers alert! Filing false claims in ITR to attract THESE penalties
Absence of rent receipts could lead to denial of HRA claim
Simply executing a rent agreement doesn’t prove that you have actually paid the rent amount mentioned on it. There are people who enter into rent agreements with family members without engaging in actual rental transactions. In such instances, the income tax authorities might deny the HRA claim due to lack of rent receipts and evidence of actual payments.
The income tax assessing officer has the authority to reject an HRA tax exemption claim if you fail to provide supporting documentation, like rent receipts, despite having a valid rent agreement. Assessing officers are bestowed with various powers to collect information and verify the legitimacy of claims in taxpayers’ filing of returns. They can also conduct inquiries and seek necessary documents.
Read More: ITR filing 2024-25: Here’s how to get relief on arrears
PAN card is necessary for claiming HRA exemption
If your annual rent payment is below Rs 1 lakh, you don’t need the landlord’s PAN but if this amount exceeds Rs 1 lakh, then quoting of homeowners PAN is mandatory. If this annual rental amount crosses Rs 6,00,000, then the tenant has to deduct 10% TDS.
What if your landlord doesn’t give you PAN details
The landlord PAN is mandatory for HRA exemption in case the rent per annum exceeds Rs 1 lakh which is Rs 8,333 per month.
“If the yearly rent exceeds Rs 1 lakh, one must share the landlord’s PAN with the employer. If the landlord doesn’t have a PAN, a written declaration needs to be provided from them, including their name and address. This requirement helps the government verify the rent payments mentioned in receipts,” explains Amar Ranu, Head – Investment Products & Insights, Anand Rathi Shares and Stock Brokers.
