6 lesser-known facts of HRA tax exemption

Almost all salaried people in the organised sector get a house rent allowance, which is roughly 50% of the basic salary. An individual living in a rented accommodation can claim exemption for the rent paid, but this exemption is subject to certain conditions. The exemption is the lowest of the following three: 50% of basic salary, or the HRA received, or the actual rent paid minus 10% of the basic salary. Though most people are aware of these rules, there are some aspects of HRA exemption that many taxpayers are not aware of. Here are six such things you need to keep in mind.

  1. Landlord’s PAN number required: If the rent is more than Rs.1 lakh a year, the taxpayer is required to submit the PAN of the landlord. If the landlord does not have a PAN then he must submit a declaration to that effect. Some companies even insist on a copy of the PAN card of the landlord for verification. Many landlords are not very cooperative in this regard, but taxpayers must convince the property owners to furnish this information. They must know that the rental income will show up in their Annual Information Statement with the tax department, so there is no point trying to avoid giving the PAN details.
  2. TDS mandatory if rent exceeds Rs.50k or landlord is NRI: A new rule now requires tenants to deduct 10% TDS from the rent payment and deposit it with the government if the rent is Rs.50,000 or more per month. The tax has to be deposited in the name of the landlord. TDS is also applicable in case the landlord is an NRI. The TDS requirement is solely the responsibility of the tenant, and failure to deduct TDS can invite penal interest of 1% per month. If TDS has been deducted but TDS return has not been filed, there is a late fee of Rs.200 per day. Many people will find this requirement quite tedious. Mercifully, TDS need not be deducted and deposited every month. It can be done once in a financial year.
  3. Claim HRA exemption jointly or if living in shared accommodation: The HRA exemption can be jointly claimed by both husband and wife and even by people living in shared accommodation or as paying guests. But this is possible only if the lease agreement mentions both husband and wife as the tenants of the shared property. The breakup of the share in the rent to be paid by both should also be specified. Likewise, if living in a shared accommodation, the rent agreement should mention the names of all the tenants. If TDS is applicable on the rent amount, it will have to be deducted from the payment to the landlord. In a paying guest arrangement, make sure the rent receipt clearly mentions the house rent and food charges separately.
  4. Take both HRA exemption and home loan benefit: The interest paid on a home loan can be claimed as a deduction if it is self occupied or given out on rent. But in some situations one can claim HRA exemption as well as the deduction for the home loan interest. For instance, a person may have bought a house with a loan in one city but lated relocated to another city to live on rent. He can claim both HRA exemption as well as the home loan benefit. He can claim both HRA exemption as well as the home loan benefit. If the house is in the same city, the tax department may disallow the HRA exemption unless there is a genuine reason.
  5. Rent can be exempt without HRA: Many small enterprises do not have a very structured salary. They just pay their employees a lump sum amount as salary every month. But even if one does not get HRA as part of the salary, one can claim exemption for the rent under Section 80GG. However, this exemption is the lowest of the following three calculations: Rs. 5,000 per month (Rs.60,000 per year), or 25% of the total income, or actual rent paid minus 10% of income. Also, if the taxpayer owns a house in the same city, he will not be eligible to claim this exemption.
  6. Claim exemption if you missed deadline: In some cases, the taxpayer may not have been able to submit his rent documents in time so his company deducted tax without factoring in the HRA exemption. Such taxpayers can claim the HRA exemption at the time of filing their tax return. The exempted amount of the HRA should be mentioned in the allowances under Section 10, while the taxable portion should be included as a part of salary as per Section 17(1).

Credit: Economic Times

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