Tips to Avoid Rejection on House Rent Allowance Exemption

As per section 10(13A), HRA is exempted to the minimum of the three amounts.

While calculating your HRA exemption, take these three factors into account:

• Actual HRA received from the employer
• 40% of the basic salary is treated as HRA. In the case of metro cities like Delhi, Mumbai, Kolkata, and Chennai it is 50%.
• Rent paid minus 10% of basic salary

You can also use HRA Exemption Calculator available with us.

Understand HRA Exemption with an Example

An example will make it clearer. If you’re living in a city like Delhi where you earn a salary of Rs. 80 thousand. You have rented an apartment at a rent of Rs. 30 thousand a month. Since you’re living in Delhi you’re eligible for an HRA of 40 thousand that is 50%.

HRA you receives from your company is Rs. 50,000.

Excess of rent paid over 10% of total salary is 30,000 – 10% of 80 thousand that means 30,000 – 8,000 = 22,000.

So, the net taxable HRA is 50,000 – 22,000 = 28000

Some Basic HRA Rules

If you’re working as an employee in private or public sector you should some of the basic rules of HRA.

• If a person is employed in a non-metro city 40% of his basic salary is considered as HRA. For the employees in metro cities like Delhi, Mumbai. Chennai and Kolkata, 50% of the basic salary is considered as HRA.
• To claim HRA it is not mandatory to pay rent to a landlord. You can pay rent to your parent and submit the receipts to get HRA exemption.
• Income tax laws don’t permit to claim HRA on submission of a receipt that shows you have paid rent to your spouse.
• A rent receipt is an essential document to claim HRA.
• While claiming HRA PAN Card details of the landlord should also be submitted so that relevant tax deductions can be made from his/her income made through renting a property.
• PAN details of the landlord are mandatory only if the rent paid is more than 1 lac rupees per annum.
• There is no HRA exemption for an employee who is living on his own property.

How to make HRA Claim?

While claiming HRA or house rent allowance claim, you need to provide your rent receipts along with PAN details of your landlord if the rent paid in a financial year exceeds Rs.1 Lac. In case your landlord doesn’t possess a PAN number, then the Income Tax department has a number of other measures to verify if the provided information is true. So those claiming a House Rent Allowance must not mislead the Income Tax Department.

Claiming Tax Benefits on Home Loan as well as HRA?

You can claim HRA benefits as long as you are staying in a rented accommodation. One can claim tax benefits on your home loan as well as HRA tax benefits if you have rented out your own house and living in a rented accommodation. In this particular case, you have to disclose your rental income or income from the property so that suitable tax can be deducted by the government.

In case both owned and rented house are in the same city, then you can’t avail exemption on both. If you’re able to prove that your owned property is far from you work location hence you require to rent an accommodation then you can claim exemption on housing loan as well as house rent allowance.

How to Avoid HRA Claim Rejection?

• If you claim that you have paid rent to your relatives like the mother, the father, the spouse, you should have evidence of your stay in the form of a rent agreement.
• It is hard to provide proof of the rent paid in cash so it's better to pay the rent by transferring it to a bank account.
• If the rent paid is taxable at your close relatives end, make sure that he or she files ITR and show rental receipts as the return of the income.
• Make sure that addresses mentioned in ration card, bank statement and return of income are same. The Income Tax Department may verify it.
• Make sure that rental payment is commensurate with the market value of the property.
• Make sure that rent paid is included in landlord’s income.
• If you are staying in an accommodation of society of your relative, don’t forget to inform the same to the secretary of society about your tenancy.