Dos and don'ts to ensure your HRA claim isn't rejected
1. Have a valid rent agreement
You have must have a valid rent agreement. The rent agreement must mention all the relevant details such as amount of monthly rent, time period of rent agreement, any utility bills to be paid by you etc. Archit Gupta, CEO & Founder of Cleartax.com says, "Make sure that there is a signed agreement between you and the landlord even if they are your parents. The agreement must mention the premises rented by you, other charges such as utility or property tax if payable by you. "
2. Flat-sharing scenario
In case of a shared accommodation, then along with the details in the rent agreement, it should also mention number of tenants co-sharing the flat, ratio in which rent and how utility bills are to be divided.
3. Avoid cash payments
Make your rent payments preferably via banking channels instead of cash. Using banking channels helps to provide an electronic trail of money for the transactions occurred.
4. Rent receipts
You must ask for receipt for the rent paid every month irrespective of the channel used for making payments. Pinky Khanna, Director, People Advisory Services, EY India says, "It is mandatory to furnish rent receipts to the employer for claiming HRA exemption for the monthly rent paid more than Rs. 3000 per month. "
5. Landlord's PAN if payment exceeds Rs 1 lakh annually
In addition to rent receipts, if your payment exceeds Rs. 1 lakh annually, then it is mandatory for you to provide the PAN of your landlord to your employer to avail the full benefit of HRA exemption. It helps you to lower your TDS deduction.
6. Declaration by the landlord
In case PAN is not available, then your landlord must be willing to give you a declaration to this effect. Confirm this before taking house on rent so that you are able to avail the benefit of HRA exemption from your employer. Along with the declaration, you also need to obtain 'Form 60' dully filled by your landlord, in case PAN is not available. You need to submit these to your employer.
7. Mismatch in salary income on not providing landlord's details
"If you do not provide PAN of your landlord, you cannot claim tax exemption for HRA from your employer while withholding TDS on salary. While I-T Act does not restrict the employee from claiming HRA tax exemption while filing returns but there will be mismatch in the salary income reported in the Form 26AS by your employer vis-à-vis that reported by you in your return. This may prompt the department to send a communication seeking response regarding the mis-match," says Khanna.
8. Differential in amount on agreement and amount actually paid
"There might be circumstances where an individual pays higher rent than what is actually mentioned on the rent agreement and difference is paid in cash. If that happens, tax exemption will be calculated only on the basis of rent receipt furnished by employee mentioning the amount paid. Any amount paid over and above the rent receipt shall not be considered for the purpose of exemption by employer," warns Khanna.
9. Residence taken in the house mentioned
Gupta further adds that that you must physically reside in the house mentioned by you while claiming HRA exemption. In case your parents are landlords, make sure that they include the rental income too while filing their returns.
10. Penalty on not depositing TDS
"Remember to deduct TDS @ 5%, from the rent paid to your landlord if you are paying rent above Rs. 50,000 per month. Interest at 1% per month is levied in case you forgot to deduct it and 1.5% per month where TDS is deducted but not deposited. It would also attract the penalty of Rs 200 per day for the period of delay," says Khanna. You can claim tax exemption up to 100% of the actual HRA received provided all the conditions to claim relief have been satisfied by you.