Income Tax News: House Rent Allowance (HRA) is a welcome relief for salaried individuals renting a place to stay. It helps reduce your taxable income, saving you money on taxes. But with the Income Tax Department cracking down on HRA fraud, it’s important to ensure your claim is squeaky clean.
Here’s what you need to do to avoid any hassles and get your HRA tax exemption approved smoothly:
Valid Rent Agreement
This is the bedrock of your claim. Make sure you have a written rent agreement with your landlord. It should be valid and comply with income tax rules.
Here’s a tip: If your monthly rent is over Rs. 50,000, the agreement should mention Tax Deducted at Source (TDS) applicable on rent. It should clearly state who will deduct the TDS and how it will be done.
For added peace of mind, include your and your landlord’s PAN and Aadhaar details in the agreement.
Rent Receipts
A rent agreement alone might not be enough. You’ll also need rent receipts as proof that you actually paid the rent mentioned in the agreement. This applies even if you pay electronically through net banking or UPI.
Remember, these receipts are crucial for your employer to deduct TDS on your salary and for you to claim the HRA exemption while filing your Income Tax Return (ITR).
Go Digital with Rent Payments
Here’s a smart move: pay your rent electronically using net banking, UPI, or other digital channels. This creates a clear record of the transaction that you can easily access if the Income Tax Department asks for proof.
Plus, it helps you stay compliant with tax rules. The Income Tax Act restricts cash payments exceeding Rs. 2 lakhs. Paying rent in cash above this limit can attract penalties.
Landlord’s PAN
If your annual rent payment goes beyond Rs. 1 lakh, you’ll need your landlord’s PAN to claim HRA exemption from your employer.
While the department might not ask for it while you file your ITR, it’s a good idea to have a copy of their PAN readily available in case they need it later.
Paying Rent to Family? Documents Are Still Key
There’s no legal barrier to paying rent to family members. However, chartered accountants advise maintaining proper documentation even in such cases. This helps avoid any rejection of your HRA claim by the Income Tax Department.