Claiming House Rent Allowance? Here's all you need to know

Crack the HRA code: Wondering about the ins and outs of claiming House Rent Allowance (HRA) exemption in the old tax regime? The process of claiming HRA exemption in the old tax regime involves several key considerations, say experts. Firstly, HRA is not fully exempt from tax and is applicable exclusively to residential premises. The exemption is determined based on the least of the actual HRA received, 40 per cent of basic salary for non-metro cities or 50 per cent for metro cities, and actual rent paid minus 10 per cent of basic salary.

"The HRA deduction is limited to rent for residential premises and does not cover utilities such as electricity and gas, said Arpit Suri, CA, personal finance expert.

PAN, paper, proof: HRA musts

Documentation plays a crucial role in claiming HRA exemption, say experts. Employees need to provide evidence, including details of rent paid, the homeowner name and address, and the homeowner's PAN if the rent exceeds Rs 1 lakh. If the homeowner lacks a PAN, a declaration in Form 60 is required, ensuring their income is within the non-taxable limit. While there are no restrictions on HRA deduction for rent paid to parents or relatives, maintaining a proper paper trail and proof of lease is advisable. Rent receipts exceeding Rs 5,000 per month should be affixed with a revenue stamp.

"In the realm of HRA and home loan benefits, it is essential to understand that there is no restriction on claiming simultaneous tax benefits for both in the same year, provided conditions under tax laws are met," Suri added.

Rent-payment precision

HRA benefits are contingent on the actual payment of rent for the occupied residential accommodation, not owned by the taxpayer. The calculation of HRA benefits is based on the period for which rent is actually paid, not the entire year. Additionally, one can claim interest on a home loan for the entire year, even if possession of the house is obtained on the last day of the financial year.

For salaried individuals paying rent exceeding Rs 50,000 per month, it is crucial to ensure that TDS at 5 per cent is deducted and deposited according to section 194IB. The submission of a challan cum statement of deposit in form 26QC, along with the rent receipt, is necessary.

Avoiding tax trouble

Lastly, caution is advised against making false claims or deductions that do not apply. Falsely claiming deductions, such as HRA without proper reflexion in Form 16, may attract the tax department's attention, leading to potential investigations into the authenticity of such claims. Therefore, accuracy is paramount in declaring deductions.