Though we are aware of the term HRA or the House Rent Allowance; it is the amount paid by employers to their employees as part of the salary. But not many of us know that the employees staying in rented accommodation can very well claim it to lower their taxes. Adding to the irony, this lot is still confused with respect to the exemptions and the rules for filing the tax returns.

We guide you here for where, what and how with respect to claiming the HRA exemption at the time of filing the tax returns.

Where to claim

The condition here remains that you are a salaried person staying in a rented house. The benefits are barred for those staying in their own house. It could be a full or even a partial exemption. The employees can claim the HRA exemptions in the following ways:

  • Through the employer in the payroll
  • Through the yearly tax returns

It is always advisable to mention your HRA claims in the declaration form provided by the employer at the beginning of the financial year itself. This gets reflected in the Part B of Form 16 while filing the Income Tax Returns. This way the mismatch between tax returns and the Form 26AS is avoided.

The other way is to claim the HRA while filing the yearly tax returns. Now you will have to compute the exemptions for HRA and deduct it from the total taxable salary. It should be reflected in the appropriate schedule under ‘salaries’.

But it should be noted that the claims should be supported with proper documents as well to avoid penal consequences.

Support Documents for claiming HRA exemptions

The HRA claims under section 10(13A) are availed through the payroll from the employer after providing necessary supporting documents. The documents are to be submitted to the Human Resource Department or the accounts department of the company where the individual is working. The supporting here would obviously be the rent related documents. These are:

  • The rent agreement and the rent receipts in case of rent not exceeding Rs.1 lakh per annum.
  • The PAN of the landlord along with the other documents in case the rent exceeds Rs.1 lakh per annum.
  • The declaration from the landlord along with the name and address details in case he does not have a PAN along with other documents.

These documents need not be submitted to the tax authorities but should be handy in case of query from the tax office.

There are provisions for the individual non-salaried tax payers who are not receiving HRA. Section 820GG comes to their benefit to a specified limit for deductions for rental expenses.

Penalties for false claims

Giving wrong HRA information or suppressing the information or even claiming HRA not substantiated by any evidence may bounce back on you. Such deeds are penned as misreporting in the new provisions vide Finance Act, 2016. A penalty of 200% of the amount of tax payable can be levied on the individual.

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