How to Avoid HRA Tax Exemption Rejection: Key Documents and Common Pitfalls to Watch Out For

Good article in Economic Times regarding HRA claims

What you must remember while claiming tax exemption of HRA or while filing income tax returns. In April 2017, an income tax tribunal ruling on rent receipts grabbed many eyeballs. This is because it rejected the HRA exemption claimed by a salaried individual for the rent paid to her mother. The tribunal rejected the claim on the grounds that there is no proof to substantiate that payment of rent has actually happened apart from a rent receipt, which could have been easily obtained by the taxpayer from her mother without paying the rent.

Here are some documents and dos and don'ts to ensure your claim of HRA tax exemption against rent paid is not rejected.

Practical Dos and Don'ts for Claiming HRA Tax Exemption

📋 1. Obtain Rent Receipts Monthly
- It is crucial to ask for a receipt for the rent paid every month, regardless of the payment channel used.
- Rent receipts are mandatory for claiming HRA exemption for monthly rent exceeding Rs. 3000.

📋 2. Provide Landlord's PAN
- If your annual payment exceeds Rs. 1 lakh, provide your landlord's PAN to your employer to maximize HRA exemption benefits and reduce TDS deductions.
- In the absence of a PAN, ensure your landlord gives a declaration. Obtain and submit 'Form 60' if PAN is unavailable.

📋 3. Reside in the Mentioned House
- You must physically reside in the house specified while claiming HRA exemption.
- If your parents are landlords, ensure they include rental income in their tax returns.

📋 4. Deduct TDS on Rent
- Deduct TDS at 5% from rent exceeding Rs. 50,000 per month to avoid penalties.
- Failure to deduct TDS attracts interest and penalties, so ensure compliance with TDS regulations.

📋 5. Maintain Transparency in Rent Payments
- Ensure the rent paid matches the rent agreement to avoid discrepancies.
- Any additional cash payments beyond the rent receipt amount won't be considered for exemption by the employer.

By following these dos and don'ts diligently, you can enhance the chances of a successful HRA tax exemption claim and ensure compliance with relevant regulations.

Read more at: https://economictimes.indiatimes.com...campaign=cppst