HRA claim against the rent paid to the landlord or house owner requires the taxpayer to note of few points else the claim may go rejected as in the case of a salaried employee whose HRA tax exemption claim was rejected by the income tax tribunal as he was unable to provide any proof for rent payment made to his mother except for the rent receipt which could otherwise be easily obtained by the taxpayer. So, here are listed few do's and don'ts which taxpayer needs to remember while claiming HRA exemption from his employer or filing ITR:
1. A valid rent agreement is a must to make claim successfully: Rent agreement must be complete in all respect i.e. it should be a signed agreement between the lessor and the lessee even if the landlord happens to be your parents. Also, it should clearly state the premises rented out by you, details on the monthly rentals, time period of rent agreement as well as any other tax or utility bill payment i.e. to be meted by you.
2. In case of shared rental accommodation: Apart from the above details, names of all the co-tenants along with individual rental share together with utility bills share for each has to be clearly specified.
3. Payments should be made through electronic mode or cheques: Refrain from paying rentals in cash as may be requested by your landlord as then you are in possession of the trail of money against rental transactions entered into.
4. Also, rent receipts needs to be furnished to the employer to make claim for HRA exemption against rentals paid if rent on a monthly basis exceeds Rs. 3000 per month. So do ask for rent receipts from your landlord every month irrespective of the mode of rent payment.
5. In a case when rentals for your accommodation exceed Rs. 1 lakh annually: Herein you need to mandatorily quote the PAN of your landlord and this is required to reduce your TDS deduction. And in a case, when you hop jobs frequently and hence move to newer locations, it makes sense to note your landlord's PAN number as anytime your rentals for accommodation may go above the threshold limit of Rs. 1 lakh in a year.
6. If PAN is not available with the landlord and rentals exceed Rs. 1 lakh annually: In such a case, your landlord should be ready to provide you with the declaration to this effect along with Form 60 duly filled by your landlord, for you to make the claim for HRA exemption from your employer.
7. Claim for HRA can be filed in the ITR: While you can surely go ahead and make the claim for HRA exemption against rentals while filing returns, there shall be imminent a mismatch in salary which will be reflected in form 26AS by your employer and the salary income quoted by you. And this might prompt the department to provide a response regarding the mismatch.
8. In a case when rent paid is higher that mentioned in rent agreement: If there is such a case, then tax exemption shall only be available for the amount for which there is a proof shown to the employer and for any amount over and above this amount, individual will not be able to make the claim.
9. Physical occupancy of the house for making HRA claim is a must: Also in case your parents are the landlord then they need to show the rent income while filing their return of income.
10. Dedduct TDS at the rate of 5% in case rent is over Rs. 50,000 per month : This is to be done else there is an interest charged at the rate of 1% on a per month basis and 1.5% in case TDS is deducted but not deposited with the govt. Also, there can be a penalty of Rs. 200 per day for the delay in deduction of TDS.
Notably, 100% exemption against the actual HRA received by the employee can be claimed provided he or she satisfies all the conditions to make the claim.