How to Claim HRA While Filing Income Tax Return?

Claim HRA while Filing Income Tax Return

Claiming HRA when submitting your income tax return is crucial since it decreases your tax liability by lowering your taxable income. Using the HRA exemption, you can efficiently improve your tax preparation and save money. For salaried people living in rented housing, it is a necessary allowance that can save a lot of money on taxes.

HRA Eligibility Criteria

When filing your income tax return, certain eligibility criteria must be met to claim House Rent Allowance (HRA). These requirements establish your eligibility to get the tax advantages connected to HRA. Comprehending the standards for claiming HRA is critical to ensure you meet them. To meet these requirements, you must be salaried, receive HRA as part of your compensation package, and live in a rental home for which you pay rent. If you meet these requirements, you can use the HRA provisions to lessen your taxable income and perhaps even your tax obligation.

Key Takeaways

Claiming HRA reduces tax liability by lowering taxable income, making it essential for tax preparation and potential savings.
Eligibility criteria include being salaried, receiving HRA as part of compensation, and living in a rented home.
The eligible HRA amount is calculated based on actual HRA, 10% of salary minus rent paid or a percentage of earnings.
Required documentation includes rent receipts, rental agreement/lease deed, and landlord’s PAN details.
Claiming HRA involves calculating the eligible amount, obtaining necessary documents, filling out relevant sections in the tax return form, and submitting it.
Common mistakes to avoid include incorrect HRA amount calculation, non-compliance with documentation requirements, and other errors on the tax return form.
Seek expert advice when needed and maintain accurate records to ensure a smooth and accurate HRA claim process.

Eligibility requirements for claiming HRA

You must be a salaried person who receives HRA as part of your wage package to be eligible to claim HRA. Additionally, you must pay rent for a place to live that you have rented. Self-employed people and people whose salaries do not include HRA are not eligible to claim HRA benefits on their tax returns.

Calculation of HRA amount

The following three criteria are used to determine the eligible HRA amount:

Actual HRA that you got from your company.
10% of your salary less the rent paid.
40% of your pay if you reside in a non-metropolitan area, or 50% of your earnings if you reside in a metro area.
The lowest of these three figures is regarded as the HRA amount that is eligible for tax exemption.

Documentation Required for HRA Claim

You must submit specific documents to prove your rental expenses when you claim House Rent Allowance (HRA) on your income tax return. These records consist of:

Rent receipts and rental agreement:

As proof of payment, rent receipts must be kept on file. The landlord’s name, address, the amount paid, and the period for which the rent is paid should all be listed on the rent receipt. These receipts are proof of the rent payments you made throughout the fiscal year.

If the annual rent exceeds Rs. 1 lakh, you must provide a rental agreement or lease deed. This document confirms your occupancy in the rented space and contains the terms and conditions of your rental agreement.

You can support your HRA claim and guarantee compliance with tax authorities’ rules by organising these records and making them available as needed. Retaining copies of these documents is advised for reference and potential inspection in the future.

PAN details of the landlord

When claiming House Rent Allowance (HRA) while filing your income tax return, you must also provide the landlord’s PAN (Permanent Account Number) information, rent receipts, and rental agreements.

You must typically give your landlord’s PAN if the annual rent is over Rs. 1 lakh. The income tax department can trace and verify the rental income received by the landlord about the landlord’s PAN information, which also helps to establish the legitimacy of the rental transaction.

Other supporting documents

In addition to rent receipts, rental agreements, and the landlord’s PAN information, further supporting documents may help you make a stronger HRA claim when you file your income tax return. Even though they might not be required, these papers can help to strengthen your argument. These supporting materials include, among others:

Utility or electricity bills: Having copies of the bills for the rented residence in your name will help demonstrate your occupancy and support your claim for HRA.
Bank statements: Providing bank statements that indicate the transactions might be used as additional proof of rent payment if you have paid your rent via checks or bank transfers.
Correspondence with the landlord: Any documented correspondence between you and the landlord regarding rent payments or other rental-related issues, such as emails or letters, may help prove your HRA claim.

Steps to Claim HRA while Filing Income Tax Return

The process of claiming House Rent Allowance (HRA) while filing your income tax return is organized and has a set of steps. Following these steps, you can save on taxes by correctly calculating and claiming the appropriate HRA amount.

Step 1: Calculate the eligible HRA amount

Before filing for HRA, You must compute the applicable HRA amount when filing your income tax return using the guidelines specified by the Income Tax Act. The following formula is used to calculate the eligible HRA amount:

The least of the following three amounts:

Actual HRA you have been given by your employer.
Rent paid minus 10% of your pay.
If you reside in a metro area, 50% of your wage (or 40% of your salary if you reside in a non-metro area).

Step 2: Obtain rent receipts and rental agreement

Gathering all required documents is the next step in claiming HRA when filing your income tax return. Seek your landlord to give you rent receipts as proof of your rent payment, and if necessary, get a rental agreement or lease deed to prove your occupancy of the rented space.

Step 3: Fill out the relevant sections in the income tax return form

Start by submitting accurate information about your personal and financial circumstances on the income tax return form (such as the ITR-1 or ITR-2).
Locate the form’s section that deals with HRA or allowances.
Enter the necessary data, including the calculated eligible HRA amount and the actual HRA received.

Step 4: Provide PAN details of the landlord

Ensure to include the landlord’s PAN information in the appropriate part of the income tax return form if the annual rent paid is more than Rs. 1 lakh.
To enable proper verification and compliance, provide your landlord’s PAN precisely.

Step 5: Submit the income tax return

Review your income tax return form for accuracy and completeness once you have filled out every necessary field and checked the data.
Along with the income tax return form, include any pertinent supporting documents, such as rent receipts and rental agreements.
Submit the completed income tax return form to the relevant tax authorities physically or electronically via the specified internet portal.
Keep copies of the submitted papers and the acknowledgement receipt for future reference.

Common Mistakes to Avoid while Claiming HRA

Incorrect calculation of eligible HRA amount

The incorrect calculation of the eligible HRA amount is one of the main errors to avoid when claiming a House Rent Allowance (HRA). This can impact taxes if the HRA exemption is claimed insufficiently or excessively. To avoid making this error, keep the following in mind:

Know how to calculate: Learn how to calculate your qualifying HRA amount, considering the actual HRA you received, the rent you paid minus 10% of your salary, and the required percentage of earnings for your city of residence.
Accurate rent and salary details: Accurate information on your wage and rent payments: Ensure you have complete information on both. Calculations can be done incorrectly if these numbers have errors or discrepancies.
Maintain accurate records: To support your claim and guarantee proper calculation of the appropriate HRA amount, maintain an orderly file system for rent receipts and rental agreements.
Consult a specialist if necessary: To guarantee proper calculation of the eligible HRA amount, it is advised to get advice from a tax expert or chartered accountant if you are confused about the calculations or have complex scenarios.

Non-compliance with documentation requirements

Failure to comply with documentation standards is another major error to avoid when claiming HRA. Your HRA claim may be rejected or subject to further review if you fail to submit the required supporting papers, such as rent receipts, rental agreements, and the landlord’s PAN number.

Other common errors to be aware of

Other typical errors to avoid while claiming HRA, in addition to the ones already stated, include giving wrong information on the income tax return form, failing to keep copies of the submitted documents, and failing to check the filed return for completeness. A seamless and accurate HRA claim process is ensured by preventing such errors.

Conclusion

We advise contacting Kanakkupillai if you need assistance claiming HRA or professional advice when filing your income tax return. Our team of experts can offer individualized support and work to ensure a smooth and accurate transaction. We can help you maximize your tax savings and satisfy your compliance obligations.