Migrating to different places due to jobs, official work or higher studies may require you to find new accommodation till the time you wish to reside in. Most of them opt for houses owned by others due to increased affordability, which is in turn compensated with rent. Several organizations impose a special kind of compensation called “House Rent Allowance” against their basic pay.
The HRA is generally added to the salary and thereby is reduced from the taxable amount received by the employee as an income. This article will decode for you the do’s and don’ts that you must adhere to while claiming HRA exemption on your basic pay. To know more, click on this URL, https://www.turtlemint.com/save-tax-on-house-rent-allowance/.
Who is subjected to HRA deduction?
Under Section 10 (13A) of the Income Tax Act, the house rent allowance can be deducted from the basic income of an individual. The formula for deducting the HRA from your basic salary is based on your basic pay, the fixed HRA amount, and the original rent of the house. Interestingly, self-employed people can also propose HRA tax merits.
Do’s and Don’t while contesting for HRA exemption
To derive the HRA exemption amount, the following three criteria can be considered:
- The actual HRA is conferred by your organization.
- The total rent paid minus 10% amount of the basic income.
- 50% of basic income in addition to the dearness allowance if you reside in a metropolitan city (Mumbai, Delhi, Kolkata, or Chennai).
Or
- 40% of basic income in addition to the dearness allowance if you reside in the other resortments (parts) of the country.
1. Always have a legitimate and attested rent agreement
You must possess an officially accepted rent agreement that is signed by you and your landlord.
2. Mention the status of sharing of the accommodation
If your apartment is being shared by another tenant, then you need to ensure that it is being mentioned on the rental agreement. This will display the decision of rent paid by each individual residing in the plot.
3. Ask for rent receipts for future perusal
It is always recommended to ask for a receipt of a transaction carried between two parties. This will propose legitimate proof that the transaction was not one-sided. You also need to upgrade the rent receipts if your monthly rent payment is beyond the threshold of Rs.3000.
4. Try to avoid payments in cash
Make it an attempt to make your payments with the landlord through digital means. This will induce better transparency of payments which is not possible in direct cash payments.
5. Do not forget to submit your landlord’s PAN if payment is more than INR 1 Lakh
Do not forget to present your landlord’s PAN if your payment is more than the threshold of one lakh per annum. This will fetch you additional perks while applying for the HRA exemption. Additionally, it also helps to deduce the TDS deduction on your basic pay.
6. Declaration by the landlord
If the PAN is not available, then fill the form 60 to retrieve maximum benefits from the exemption of the HRA. Your landlord must also sign a declaration before renting the house to you.
7. Do not forget to provide your landlord’s details and not glitch the income
If in the “form 26AS”, you have failed to mention the landlord’s details, the employer stating your ITR filing can charge you with the payment of the HRA. Even in the case of any glitch in the basic income, the department will be liable to contact you regarding the discrepancy.
8. You must physically reside in the rental slot
As a tenant you must physically reside in the rented house otherwise you will be subjected to HRA payment.
9. Avoid getting penalized for not depositing the TDS amount
Always remember to apply and deduct 5% TDS from your monthly rent if it exceeds INR 50,000. If you forget to meet the requirement, then an interest of 1% every month along with a 1.5% TDS deduction (not deposited as a payment). Moreover, you can also be liable to pay INR 200 every day for the delay induced from your end.
Conclusion
Since you are now aware of the basic roadmap of filing an HRA exemption and the supposed do’s and don’ts, then do not forget to pay your TDS on time! From day one, make sure you collect all the necessary documents and mention the required details meticulously.
