HRA Tax Exemption Guide: As the year ends, employees often have to deal with tax matters and investment declarations, especially those living in rented houses. House Rent Allowance (HRA) can help in tax deduction. Still, a common question is whether both Rental Receipts and Agreements are required for HRA claims.
Importance of rental receipts and agreements
Akhil Chandna, partner, Grant Thornton India, told ET that merely having a rent agreement may not be sufficient for HRA exemption. Rent receipts are important to prove that the rent mentioned in the agreement has been paid. Therefore, it is recommended to keep both rent receipts and agreements to show the assessing officer when needed.
Risk of HRA claim being rejected
Tarun Kumar Madan, head of tax at Coherent Advisors, points out the risks. Income tax The department is rejecting HRA claims in the absence of rent receipt. Mere execution of the rental agreement does not guarantee actual rental payment, especially if the agreements are made within the family. He explains that the assessing officer may reject the claim if there is no supporting document proving actual payment of rent.
Documents for filing ITR
While filing your Income Tax Return (ITR), it is important to have proof of tax exemption or deduction claimed. The assessing officer may ask for evidence during ITR processing. Not providing required documents like rent receipts can lead to rejection of HRA tax exemption claims, even if you have a valid rent agreement.
Discretion of Assessing Officer
Abhishek Soni, CEO, Tax2Win.in, highlights that the assessing officer has the authority to accept, reject or verify the claims in the ITR. Although rent receipts add credibility to the HRA claim, the officer may also take into account other factors to assess its authenticity. Soni advises that it is recommended to collect fare receipts even for payments made through banking channels.
Recommended Action for Employees
To guard against possible HRA claim rejection, tax experts advise employees to keep both rent receipts and rent agreements as documentary evidence. Rent receipts should include details like landlord’s name, address, payment amount, TDS deducted (if applicable) and mode of payment. Additionally, it is advisable to put a revenue stamp for monthly cash payments of more than Rs 5,000.
Claiming HRA Tax Exemption
Employees can claim HRA tax exemption by submitting proof of rent payment to their employer, which will then appear in Form 16. Alternatively, if proof is not submitted to the employer, exemption can be claimed during ITR filing. If the assessing officer raises suspicion to avoid additional TDS deduction then evidence should be provided immediately. If the annual rent exceeds Rs 1 lakh, the employer is required to submit mandatory PAN or Aadhaar, and if the monthly rent exceeds Rs 50,000, TDS must be deducted, especially when dealing with non-resident landlords.
To benefit from HRA tax exemption, it is important to handle the paperwork carefully and follow the advice of tax experts. Keeping systematic records and submitting the required evidence promptly will help employees claim HRA tax benefits easily.
Importance of rental receipts and agreements
Akhil Chandna, partner, Grant Thornton India, told ET that merely having a rent agreement may not be sufficient for HRA exemption. Rent receipts are important to prove that the rent mentioned in the agreement has been paid. Therefore, it is recommended to keep both rent receipts and agreements to show the assessing officer when needed.
Risk of HRA claim being rejected
Tarun Kumar Madan, head of tax at Coherent Advisors, points out the risks. Income tax The department is rejecting HRA claims in the absence of rent receipt. Mere execution of the rental agreement does not guarantee actual rental payment, especially if the agreements are made within the family. He explains that the assessing officer may reject the claim if there is no supporting document proving actual payment of rent.
Documents for filing ITR
While filing your Income Tax Return (ITR), it is important to have proof of tax exemption or deduction claimed. The assessing officer may ask for evidence during ITR processing. Not providing required documents like rent receipts can lead to rejection of HRA tax exemption claims, even if you have a valid rent agreement.
Discretion of Assessing Officer
Abhishek Soni, CEO, Tax2Win.in, highlights that the assessing officer has the authority to accept, reject or verify the claims in the ITR. Although rent receipts add credibility to the HRA claim, the officer may also take into account other factors to assess its authenticity. Soni advises that it is recommended to collect fare receipts even for payments made through banking channels.
Recommended Action for Employees
To guard against possible HRA claim rejection, tax experts advise employees to keep both rent receipts and rent agreements as documentary evidence. Rent receipts should include details like landlord’s name, address, payment amount, TDS deducted (if applicable) and mode of payment. Additionally, it is advisable to put a revenue stamp for monthly cash payments of more than Rs 5,000.
Claiming HRA Tax Exemption
Employees can claim HRA tax exemption by submitting proof of rent payment to their employer, which will then appear in Form 16. Alternatively, if proof is not submitted to the employer, exemption can be claimed during ITR filing. If the assessing officer raises suspicion to avoid additional TDS deduction then evidence should be provided immediately. If the annual rent exceeds Rs 1 lakh, the employer is required to submit mandatory PAN or Aadhaar, and if the monthly rent exceeds Rs 50,000, TDS must be deducted, especially when dealing with non-resident landlords.
To benefit from HRA tax exemption, it is important to handle the paperwork carefully and follow the advice of tax experts. Keeping systematic records and submitting the required evidence promptly will help employees claim HRA tax benefits easily.
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