For example, while the persons drawing salary receives HRA , which gets TAX EXEMPTION under section 10 (13A) of Income Tax Act, 1961 read with rule 2A of Income Tax Rules ; the self-employed persons are entitled for TAX DEDUCTION under section 80GG of Income Tax Act, 1961.
Here we discuss some tips and frequently asked questions (FAQs) relating to HRA tax calculations and claiming exemption:
Calculating HRA Exemption
1. How to calculate HRA? Or, how much HRA is exempt from tax?
Please READ “How to Calculate HRA Income Tax Exemption”.
2. Whether HRA calculation to be done on monthly basis or annual basis?
There are four variables in HRA tax calculations: namely, salary (i.e., basic pay plus DA), HRA received, rent paid and the city of residence (whether metro or non-metro). In case all of the four remain the same through out the year, the HRA tax exemption calculation is to be done on ‘annual’ basis. On the other hand, if there is a change in any of the variable during the year then HRA tax exemption calculation is to be done on monthly basis.
3. What if the place/city of residence and place/city of working is different?
Good question. In such a case for the purpose of HRA calculation, place of residence will be considered and not place of working. Suppose that you’re working in a factory or a company located in Sonepat (near New Delhi) while residing in New Delhi. So, for the purpose of HRA, your maximum entitlement for tax purpose will be 50% of the basic instead of 40% because for metros HRA tax entitlement is 50% and for non-metros it is 40%.
Claiming HRA Exemption
4. How to Claim the maximum possible tax exemption on HRA?
Yes, indeed it is possible to claim the HRA tax exemption to the maximum extent possible as provided in the income tax law. For details, please read “How to Claim Maximum HRA Tax Exemption”.
5. How can a self-employed person claim tax benefit for the rent paid?
As the self-employed person doesn’t receive any salary, so there is no HRA and consequently question of HRA exemption – under section 10 (13A) of Income Tax Act, 1961 read with rule 2A of Income Tax Rules –doesn’t arise.
However, to take care of such a situation, there is a separate provision in the Income Tax Act, whereby a person not in receipt of HRA but incurring rent expenses for his residence can claim a deduction under section 80GG which is quite similar to section to 10(13A) but some additional conditions have been imposed.
6. Is it possible to claim HRA as well as home loan tax benefits?
Yes, certainly. There is no relationship between claiming HRA exemption and claiming interest deduction for housing loan. For details, please go to “4 Ways to Claim HRA exemption and House Loan Interest Deduction”.
7. What if the employer refuses to allow the HRA tax benefit?
Nothing to worry about. Just claim it while filing your return of income and get the refund of excess TDS deducted from your salary. But, first try to convince your employer and clarify his doubts, if any, regarding your eligibility for claiming it. If your case is indeed genuine, I don’t think your employer should have any problem in allowing HRA tax exemption.
8. Is it possible to claim HRA if residing in a relative’s (Parents/Spouse) house?
Please read "4 Ways to Claim HRA exemption".
9. Can both the working spouses claim HRA tax benefit separately?
Yes, Why not? If both of them are paying rent and landlord issues either two separate rent receipts or only one receipt specifying the amount or proportion paid by each, then both husband and wife are entitled for HRA exemption according to the amount of rent paid.
Submission of Evidence
10. What evidence needs to be submitted for claiming HRA?
The only evidence required for claiming HRA tax exemption is proof of rent payment (i.e., the rent receipt issued by the landlord). A lot many people think that you also require rent agreement for claiming HRA tax exemption but there is no such requirement in tax laws.
Furthermore, even the requirement of production of rent receipts have been dispensed with for the salaried employees drawing HRA (house rent allowance) up to Rs 3,000 per month. Please note that this relaxation is only for the purpose of TDS on salary and in the regular assessment, tax assessing officer has the power to ask for the relevant evidence, if deemed necessary.
Besides, please carefully note the above limit of Rs 3,000 is for the amount of HRA received per month and not for the amount of rent paid. For example, if you’re drawing a monthly HRA of Rs 4,000 p.m. but paying a rent of Rs 2,500 per month, you’ll have to submit the rent receipt for claiming HRA.
11. Can we submit rent agreement instead of rent receipt for claiming HRA?
Yes, if you wish you can submit the rent agreement but it can be in addition to and not instead of the rent receipt.
It’s quite possible that you’ve entered into a rent agreement but not paid the rent. The evidence of actual payment of rent is only the rent receipt and not the rent agreement. Thus, at present the only documentary evidence required for claiming HRA is rent receipt.
12. Whether PAN no. of landlord needs to be mentioned on rent receipt?
No, there is no such requirement under the tax law.
13. Whether all the 12 months rent receipts need to be submitted?
Absolutely not! The basic purpose is to satisfy the DDO that you’re actually paying the rent. It will suffice if you submit rent receipts for 2 months – one for the start of the financial year (i.e., April) and other one for the end of the financial year (i.e., March), or at the most 3 months (third one for the middle of the year).
14. Is there any particular format for rent receipt?
No particular format for rent receipt has been specified under the income tax law. However, a typical rent receipt can be as follows:
Received a sum of Rs ------vide cheque (no.-------dt------) or cash, being the rent for the month/period of ----- from Mr./Mrs.----- in respect of House no----(Mention complete address).
(Name of Landlord)
It can also be in a different wording, but please ensure it mentions the following relevant information:
a) Amount of rent paid
c) Mode of payment (Cheque/Cash)
d) Your name
e) Landlord’s name
f) Landlord’s signature
g) Residential address
h) Date & Place
i) A revenue stamp of Rs 1 for payment (both cash/cheque) exceeding Rs 5,000.
I hope that above tax planning tips and Faqs are able to answer your queries regarding calculating and claiming HRA income tax exemption. However, if you still have any doubts, or if there are any unanswered questions, please feel free to ask here in the comment box. I’ll try my best to clarify them.
Also See:3. 4 Ways to Claim HRA with Home Loan Tax Benefits