HRA (House Rent Allowance) is an integral component of the basic salary structure of an employed individual. It is a form of compensation to meet the expense of the rented place for residential purposes. Importantly, the Income Tax Act facilitates an excellent way for employed individuals to claim HRA exemption and lower their taxes. The HRA is specifically for the expense associated with rented residential. In case you don’t reside in rented accommodation, then the allowance is entirely taxable.
Before delving deep into the mistakes that should be avoided while filing for HRA tax exemption, let’s know the primary conditions based on which required HRA is calculated. Also, the lowest among the following conditions is taken into consideration for the HRA deductions:
- The actual HRA amount received by an employee individual.
- Additional rent paid for accommodation annually minus 10% basic salary.
- 50% of basic salary, if the accommodation is situated in metro cities, or 40% of the basic salary if the residence location is located in non-metro cities.
Mistakes To Avoid While Claiming HRA Exemption
Not Mentioning Valid Rent Agreement
A credible rent agreement is a foremost requirement to receive HRA tax exemptions. It must include all the essential details, such as the precise amount of monthly rent, other utility bills, and the predetermined period of the existing rental agreement. The intended rental agreement is compulsorily signed by the landlords and the tenants with mutual acceptance without any coercion. However, the documents must be free from ambiguity and stand as valid credentials irrespective of the payment duration, whether it is monthly, quarterly, or annually.
Not Having Requisite Supporting Documents
The exemption for House Rent Allowance (HRA) can be availed by the employee under section 10(13A) after furnishing essential documents and also meet the required conditions. However, suppose individuals are self-employed with no HRA segment in the salary structure. In that case, they can claim the HRA exemption under section 80GG of the Income Tax Act. In both cases, make sure your HRA exemptions claim while filing tax returns is supported by credible documents. Otherwise, there will be a high possibility of rejection.
Failed to Provide Landlord’s PAN Details in case annual rents exceeds
While filling HRA tax exemption form, the beneficiary should submit the Landlord’s credentials if the annual rent amount exceeds the landmark of 1 lakh. In that case, the individual must submit the landlords’ PAN card details for facilitating HRA deductions. Further, it also lowers an individual’s TDS dedication. If the PAN card detail is not available, the landlord should provide a declaration regarding the aspects. Additionally, the individual also should obtain ‘Form 60’ and is filled by the landlord. Both declaration and Form 60 need to be submitted to claim HRA exemption.
Stating Higher Rent Amount Than in Rent Receipt
In some cases, an employed individual pays higher rent compared to what is precisely mentioned in the rent agreement. Most of the time, the difference amount is paid in cash. However, the tax exemption will be assessed only on the amount started in the rent receipt in such situations. After that, any specific amount paid in cash shall not be contemplated for the purpose of tax exemption. Hence, while filling the form to loan HRA exemption, mentioned the amount as per rent receipt that corresponds to the predetermined rental agreement.
Forget to mention TDS (Tax Deducted at Source)
As an individual, if you are paying rent more than 50,000 per month. Then, there is a provision to deduct TDS @ 5% on the amount of rent paid. However, if you forget to mention the requisite TDS while filing HRA tax exemption, then 1% per month interest will be imposed, and 1.5% per month where TDS is being deducted but failed to deposit within the stipulated time. Moreover, it would also attract an additional penalty of 200 per day for the delayed period. Therefore, TDS should be well ascertained and timely compensated without any fail.
Ignore the Essential Details regarding Share Accommodations
In the case of shared accommodation, an individual should furnish all the requisite details stated in the rental agreement, such as the number of tenants, the ratio in which rent is allocated, and share in the utility bills (water, electricity bills, or others). Then, one can claim HRA exemption according to the shared rent agreement and the respective rent ratio.
Wilful Violation of Compliances
Exemptions are like rebates or another form of saving taxes that falls under the gamut of jurisdictions. However, to gain necessary benefits and save taxes, individuals willingly breach the compliance and thus receive heavy penalties when caught. Such malign activities include the concealment of origins credentials, misreporting of rent and income, the discrepancy in TDS, and others. Hence, it is advisable not to indulge in any sort of discrepancies and claim the tax exemption by submitting credible details.
The aspects of the HRA deduction claim are based on several determinants. First, an individual has to verify the claim of HRA exemption supported by essential documents that need to be submitted while filing income tax returns. So, you can exempt the requisite HRA received provided all the necessary conditions to claim have been satisfied.