Documents Required to Claim HRA in ITR

HRA, or House Rent Allowance, is one of the most fundamental constituents of income for salaried Indian citizens. It aims to cater to the salaries of employees so that they can meet the costs incurred for renting a house. It forms a part of the remuneration package, especially for individuals staying in cities, where the cost of renting a house could be substantial. According to the Income Tax Act of 1961, HRA is one of the allowances where it permits deductions of the rent paid by an employee from the taxable income of an employee if the specified conditions are met.

HRA is highly helpful in expensive cities in terms of housing as it encourages people to live closer to work by saving one’s earnings from rent. The employees also get relief on reducing their income tax as a part of salary known as HRA can also be exempted from income tax subject to the conditions and limits mentioned in Section 10 (13A) of the Income Tax Act, 1961.

This tax exemption is a form of relief from financial burden and also persuades employers to structure salary packages in a tax-advantageous way for their employees.

Conditions for Claiming the HRA Exemption

House Rent Allowance (HRA) exemption under the Income Tax Act, 1961, allows salaried individuals in India to claim tax deductions on the rent paid by them to the landlords for residing in their property. The exemption is computed based on a specific criteria and is designed to reduce the tax burden of individuals who live in rented housing.

Let us understand the conditions that must prevail to claim the HRA exemption under the Income Tax Act of 1961.

1. For an individual to claim HRA exemption, he should be a salaried person. A person who is under self employment cannot avail an HRA exemption according to the Income Tax rules and regulations.
2. The salaried person who wants to claim an HRA exemption should receive the said allowance as a part of his salary or cost to company (CTC). It should either be included or form part of his salaried income.
3. There must be a rented property in the subject. In other words, the person intending to claim an exemption must rent a property for his personal accommodation.
4. In addition to a rented accommodation, there should also be in existence, a rent agreement executed between the tenant and landlord wherein the period of tenancy, particulars of both the landlord and tenant, rent amount, clear address of the rented property and such other details are specified.
5. The employer should be informed about the rent agreement by presenting the rent receipts, which contain the required information and details concerning the tenant, landlord, property, etc.
6. To claim exemption from HRA under the Act, an income tax return has to be filed because an exemption can be claimed only in the income tax return form and not otherwise. So, if the tenant does not file a return, he cannot claim the exemption.
7. In case there are multiple tenants or where there are more than one tenant sharing the same property on rent then the claim shall be filed based on the calculation of share of each tenant in the contribution of rent and exemption will be granted proportionately.

How is HRA Calculated Under the Income Tax Act of 1961?

House Rent Allowance (HRA) exemption cannot be availed but a tax deduction can be claimed towards the rented place of residence under Section 80GG of the Income Tax Act, 1961, in the case of self employment. Only salaried persons can claim an HRA exemption and to do so, not only the Act but also the policies of the company in regards to HRA are also considered and referred to simultaneously.

The calculation of the amount of HRA is different for metro cities and non-metro cities and has to be adjusted accordingly like below –

1. Actual HRA received
2. Fifty percent of basic salary and daily allowances, in case of metro cities – Delhi, Mumbai, Kolkata and Chennai. [50% (basic salary + DA)]
3. Forty percent of basic salary and daily allowances, in case of non metro cities. [40% (basic salary + DA)]
4. Amount of difference between the actual rent paid and ten percent of basic salary and daily allowances. [Actual rent paid (-) 10% (basic salary + DA)]

Whichever is LOWER of the above amounts.

Documents Required for HRA Exemption

The below package of documents will let the employees or tenants to claim HRA exemption easily and smoothly. In case they are not able to provide proper proof, it may lead to a situation where the employer might decline and reject the application for claiming HRA exemption.

Claim for HRA exemption requires the submission of certain documents as below –

1. Employee declaration form – Every employee who wishes to claim exemption should submit a form to his employer or employing company, declaring his intention to claim the HRA exemption along with the information relating to the rent period, particulars of the landlord, particulars of the rented property and amount of rent paid. Such a declaration form is also available to employers and can be requested by the employee to file his claim.
2. Rent receipts – The receipts of rent paid serve as proof of the tenant’s payment to the landlord and validate the rent transaction between them. Generally, receipts of at least three months or the period of tenancy, as mentioned, are requested. Although there is no format as such prescribed under the Act, it would suffice if the rent slips contained the necessary information like particulars of the landlord, complete address of the property rented, period of stay, exact amount of rent and signatures of both parties, tenant and landlord.
3. Rent agreement or lease deed – A rent agreement is not a mandatorily required document, but it can be submitted to present a stronger claim.
4. Utility bills – These may be required if the submitted documents seem insufficient or incomplete and further proof is needed to provide a true and fair assessment of the claim. These bills should be in the name of the employee that is the tenant and the address should be of the rented property.
5. Permanent Account Number (PAN) of the landlord – The landlord’s PAN is mandatory only if the rent amount exceeds Rupees One Lakh per annum. Otherwise, it is not a mandatory condition to furnish the same.

Reasons for Rejection of an HRA Exemption

It is always essential to keep and maintain proper records and furnish genuine rent payments so that HRA bonuses are not lost. As per the provisions of the Income Tax Act 1961, the HRA exemptions can be disallowed under the following circumstances:

1. If an application for claiming exemption is presented by an HRA recipient living in accommodation under rent, he will have his claim rejected if he evicts into his own house or raises any claim without paying rent.
2. The claim will be rejected if the claim is filed for an amount more than the amount of rent actually paid. The claims must also be verified; filing claims for unreasonable rent amounts will not be accepted.
3. To claim HRA exemptions there must be a relationship of tenancy, the absence of which shall not grant a successful claim exemption. Rental expenses for family members such as spouses, parents or kids who live with the taxpayer, might not be accepted, especially if such payments involve rent practices thinly-veiled as tax evasion engineered by false documentation.
4. Another reason for rejection is duplication of documents or applications for the same property in question. An HRA submission involves exclusion for underutilized rent where an individual seeks undrawn home loan benefits for the same property or pays house rental and earns rent on owned property simultaneously, hence eliminating any useful purpose of paying a home rent allowance.
5. If there are any discrepancies in the documentation formalities, then any claim for exemption of HRA will not be successful. Any differences concerning the called rents and the actual payment made, which can be established on the bank statements, will lead to the rejection of claims at the review stage.
6. In cases where the proof of payment is submitted late or not submitted at all shall result in the denial of the HRA exemption by the Income Tax authorities.
7. Where any claim is filed by submitting forged documents or documents with false information or fake details driven with the motive to evade maximum tax liability then the result would be rejection along with additional levy of fines and penalties.

Conclusion

House Rent Allowance or HRA, a tax-free allowance under the Income Tax Act 1961, has numerous and deep tax reliefs for salaried workers residing in houses on rent. However, it is only up to a limit that one can avail of the exemption by strictly adhering to those conditions that prove this allowance to be exempted from taxation.

First, the employee must be occupying the rented house and must furnish substantiating evidence, which will comprise, among others, rent receipts, a copy of the rental agreement, and bank statements showing payment for the rent. Additionally, the landlord’s PAN must be provided if the annual rent exceeds one lakh rupees. Even the rent charged, in this case, shall be fair because the fictitious receipts or the figures which cannot be supported because of a probable inquiry may be denied such a claim.

Further, it is also worth to be noted that HRA cannot be claimed in all circumstances like for instance, if an employee occupies a house owned by him or if he occupies a house which is provided for free. In addition, employees that usually rent houses from relatives such as wives or parents must make sure that it is not just a tax saving gimmick, for such claims if found to be bogus will be declined.

Claiming the same tax benefit more than once, like HRA and home loan interest, will be claimed on the same house unless conditions for that particular claim are satisfied, like renting a place in another city for work.

Therefore, following these norms, recording and filing only honest claims, the HRA component can prove to be really advantageous for taxpayers under the Income Tax Act of 1961.