Claiming Bogus HRA: Stop; What are the Caution points for salaried Individuals

This article discusses caution points for salaried individuals claiming HRA, which will help them in the case of the Income Tax Scruitney.

[Read more at: Rent Paid to Spouse or Parents: Will I get HRA Exemption?]

Make a rental agreement with your landlord.

It is very important to have a written rental agreement with your landowner. The rent agreement should be notorized and should clearly specify tenure, rent amount, and property details.

Do take PAN of the Landlord

Ensure you are taking the Permanent Account Number (PAN) from Landlord. It would be better if the same is mentioned in the rental agreement itself.

Payment of Rent

The Income Tax Department does not appreciate cash transactions if they are of high value. Ensure that you make Payment of rent via the Banking channel. Making payments through cash is a big no.

Taking Rent receipts

Rent receipts act as important proof of rent payment if your case is selected for scrutiny. Thus it is good for you to take rent receipts if you are making payment of rent, specially if the payment is in cash.

Filing Income Tax Return

You cannot control whether your landlord is filing his Income Tax Return (ITR) or not. But if you are giving rent to your parents, please make sure that you file their return and the rent paid to them is shown as income.

[Also Refer: Make sure your Landlord files ITR if you are giving rent and claiming HRA]

Deduction of TDS

The Finance Act, 2017 has introduced section 194-IB providing that Tenant of a property making a monthly rent payment exceeding Rs 50, 000 is required to deduct tax at the rate of 5% from the rent payable to a resident landlord.

Don’t forget to do this compliance if your rent payment exceeds the amount.

[Also Refer: FAQ of TDS on Rent under section 194-IB of Income Tax Act]

How to Calculate Exempt HRA?

According to section 10 (13A) of Income Tax Act, 1961 read with rule 2A of Income Tax Rules, House Rent Exemption will be least of following three:

1. Actual HRA received

2. Rent paid in excess of 10% of salary (Basic + Dearness Allowance + Commission (as % of turnover achieved by the employee))

3. 40% of salary (50% if residing in a metro i.e., New Delhi, Kolkata, Chennai or Mumbai)

Salary for the above purpose means “Basic + Dearness Allowance + Commission (as % of turnover achieved by the employee)”. However, private sector organizations, usually, don’t provide Dearness Allowance to employees.

For Example, suppose your HRA is Rs. 360,000, and your Basic Salary is Rs. 1100,000 and you live in Delhi and are paying monthly rent of Rs. 40000.

• So your Actual HRA received is Rs. 360,000
• Rent paid in excess of 10% of salary (Basic + Dearness Allowance) is Rs. 370,000
• 50% of salary is 550,000

So in this case your complete HRA would be exempt

Know more about HRA Exemption | House Rent Exemption U/S 10(13A)

Use HRA Calculator from Income Tax website to calculate HRA