Many times, people have to move to a different city in order to work. In such cases, they may end up paying rent for accommodation. Organizations often compensate employees for this expenditure by paying them a house rent allowance over and above their basic pay. This is usually a part of the salary structure. However, HRA is eligible for income tax exemption and can be a great way to reduce your taxable income.
Quest 1. What if I have a Home Loan as well? Can I claim a deduction on home loan interest?"
Ans. Yes. HRA has no bearing on your home loan interest deduction. Both can be claimed simultaneously.
Read this article for more details- Can I claim Tax Benefit on both HRA & Home Loan?
Quest 2. “My employer doesn’t provide me with HRA? Am I losing out on saving tax?”
Ans. Not at all. If you are making payments towards rent for any furnished or unfurnished accommodation occupied by you for your residence, but do not receive HRA from your employer, you can claim a deduction under section 80GG.
However, certain conditions must be fulfilled to claim this deduction:
- You are self-employed or salaried
- You have not received HRA at any time during the year for which you are claiming 80GG
- You or your spouse or your minor child or HUF of which you are a member – do not own any residential accommodation at the place where you currently reside, perform duties of office, or employment or carry on business or profession.
In case you own any residential property at any place other than the place mentioned above, then you should not claim the benefit of that property as self-occupied. That other property would be deemed to be ‘let out to claim the deduction under section 80GG.
Quest 3. “So how do I claim the Section 80GG deduction?”
Ans. The least of the amounts below will be considered as the deduction under this section:
- Rs 5,000 per month
- 25% of Adjusted Total Income
- Actual Rent less 10% of Adjusted Total Income
Adjusted Total Income means Total Income less long term capital gain and short term capital gain under section 111A and Income under section 115A or 115D and deductions 80C to 80U (except deduction under section 80GG).
Quest 4. “I am living with my parents. How do I claim the HRA deduction?”
Ans. Let’s understand this through a case: Ms. Sonam works at an MNC in Bangalore. Her company provides her with a house rent allowance. But she doesn’t live in rented accommodation; she lives with her parents instead. How can she make use of this allowance?
Sonam can pay rent to her parents and claim the allowance, provided they own the place they currently live in. All Sonam has to do is enter into a rental agreement with her parents and transfer money to them every month.
This way Sonam can make a nice gesture and give something back to her parents, and also save some tax.
Important: Sonam’s parents will have to show the rent she paid in their income tax returns. But as a family, they will save up. They can generate their Rent Receipts.
Ques 5. “I have forgotten to submit rent receipts to my employer. How can I claim the HRA tax benefit now?”
Ans. The good news is that HRA can be claimed directly on your income tax returns. . All you have to do is manually calculate the HRA tax exemption and then report this as an expense under Section 10(13A) in ITR1. You will also need to declare this in Form 16 - Part B. You will then be able to claim a refund of tax that has been deducted in excess.
Ques 6. Can the maintenance charges that I pay for my apartment be included for HRA tax exemption?
Ans. No. HRA deductions are allowed only for rent payment. Maintenance charges, electricity charges, utility payments, etc. are not included.
Ques 7. Can a self-employed taxpayer claim HRA?
Ans. No, a self-employed individual cannot claim HRA exemption under the Income Tax Act, 1961. A salaried individual having an HRA component in their salary structure can claim HRA exemption under Section 10 (13A) of the Income Tax Act.
Crackdown on tax evaders
Submitting fake rent receipts has been one of the most common ways for individuals to reduce their taxes, despite it being unethical. However, the new rules put in place by the Income Tax Appellate Tribunal (ITAT) are expected to change all this. Assessing officers can question individuals and ask them for additional documentation if they feel the rent receipts provided are not adequate proof. This is just one of several measures that the government has put in place to curb instances of tax evasion and black money.
Failing to comply with these rules and providing fake rent receipts is considered fraud, and could result in serious consequences.
So, ensure you are well versed with the tax filing process and that you have all the necessary documentation in place for filing returns. It will make the entire process smoother and quicker for you.