10 Things to know about HRA to ensure it is not rejected

In April 2017, there were many case laws regarding rejecting the claim of HRA Exemptions claimed by the salaried individuals for the rent paid to the mother. 

The tribunal had rejected the claims on the grounds of not having the actual proof of making rent payment. The individuals were claiming the HRA Exemption only based on rent receipts. In the view of tribunal, the rent receipts can be obtained easily by the taxpayers even without paying the rent to the mother. 

To save yourself from getting rejection of HRA Claim and claim 100% exemption, you need to satisfy all the conditions. Here are the 10 things you should keep in mind:


1. Rent Agreement: Rent receipts could be fake, but there are rare chances that the rent agreement is bogus. You must have a valid rent agreement signed by you and your landlord (even your parents). Rent agreement constitutes conclusive evidence as it shows the amount of rent to be paid, any other expenses to be paid by you, etc.

2. Physical residency: You must be living in the rented property to claim the HRA, and your landlord has to show the rental income in his/her income tax return.

3. Mode of payment: Payment of rent via electronic means (banking channels) helps to establish proof of actual transaction. Ignore the payment in cash.

4. Monthly rent amount: For claiming the HRA Exemption, it is compulsory to submit the rent receipts to your employer if you are paying rent more than Rs. 3,000 per month. Make sure to ask for rent receipt every month and mention the mode of payment also in the receipt. 

5. Shared accommodation: Sometimes, people live in shared accommodation and pay rent equally or in mutually decided ratio. Then, you should mention the name of all parties in the rent agreement that is living in shared accommodation.

6. TDS Deduction: As per the TDS provisions, if you are paying rent above Rs. 50,000 per month, then your landlord has to deduct TDS @5% under section 194-IB. TDS amount shall be deducted in the last month of the previous year or the last month of the tenancy (as the case may be). Otherwise, the interest shall be levied. 

7. Mandatory PAN: As per the Income-tax Act, if your rent payment exceeds Rs. 1 lakh annually, then it is compulsory to submit your landlord’s PAN number to your employer. 

8.  Declaration: In case the PAN is not available, then your landlord is responsible for providing you a declaration in “FORM -60.” Submit this declaration to your employer to get the full benefit of HRA.

9. Mismatch in 26AS: There are the chances that you forget to submit PAN or declaration to your employer. In such cases, you can’t claim HRA exemption while withholding TDS on salary. But, you can claim the exemption before the filing of return. Here, you will see a mismatch in 26AS and your income tax return. Be ready for the response of this mismatch to the income tax department. 

10. Higher rent than rent receipts: Sometimes, people pay a higher amount of rent than actually mentioned in rent receipts and the remaining amount in cash. In such a case, you are eligible to claim HRA only for the amount specified in the rent receipts. 

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