HRA Claim: Accrual vs. Cash Basis
For claiming HRA, should the rent paid be considered on an accrual basis or cash basis? In other words, should we consider the date of rent receipts or the period to which the rent applies?
For example, for the FY April 1, 2014, to March 31, 2015 - if the employee pays rent in the following month (March rent paid on April 5), then should we take:
• Rent receipts for the occupancy period March 2014 to Feb 2015, which will have receipts dated between April 2014 to March 2015? OR
• Rent receipt for the occupancy period April 2014 to March 2015, which will have receipts dated between May 2014 to April 2015?
Thanks for your advice.
From India, Delhi
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3For claiming HRA, should the rent paid be considered on an accrual basis or cash basis? In other words, should we consider the date of rent receipts or the period to which the rent applies?
For example, for the FY April 1, 2014, to March 31, 2015 - if the employee pays rent in the following month (March rent paid on April 5), then should we take:
• Rent receipts for the occupancy period March 2014 to Feb 2015, which will have receipts dated between April 2014 to March 2015? OR
• Rent receipt for the occupancy period April 2014 to March 2015, which will have receipts dated between May 2014 to April 2015?
Thanks for your advice.
From India, Delhi
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Period of stay only to be considered not the payment date. Pon
From India, Lucknow
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From India, Lucknow
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This is a good question. I also attempted to gather information regarding the documents required by the employer when providing relief for House Rent Paid. There are no specific guidelines about the documents, such as rent/tenancy agreements, rent receipts, or similar. Nowadays, rent payments are often made online, and typically, actual rent receipts are not obtained by the tenant. Can anyone clarify the provisions of the IT Act regarding this relief?
Regards,
Ramakant
From India, Pune
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Regards,
Ramakant
From India, Pune
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Please note, salary working under the Income Tax Act should be on an accrual basis. Hence, rent should also be on an accrual basis. Sometimes, it may happen that the actual payment of rent is not made in a particular year. In that case, if a registered lease agreement is in place and according to that agreement, you can claim the rebate. However, it is crucial that under the head of Income from Salary, salary receipts and allowable rebates must be on an accrual basis/mercantile accounting system and not a mixed system.
From India, Pune
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From India, Pune
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Mr. Anonymous,
If you know the definition and implication of the assessment year/previous year, you can apply your own mind also about what should be the period for the purpose of calculating gross income, exemptions, rebates, and taxable income, whether on accrual or actual basis.
From India, Delhi
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If you know the definition and implication of the assessment year/previous year, you can apply your own mind also about what should be the period for the purpose of calculating gross income, exemptions, rebates, and taxable income, whether on accrual or actual basis.
From India, Delhi
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Thank you for your response. Maybe your response is intended to guide me towards the answer, but I am unable to find the definitive answer.
For tuition fees, life insurance premium payments, medical insurance premium payments, etc., we allow the deduction on an actual (cash) basis, i.e., based on the date of payment. So my guess would be that it is the same for rent payments also. On the other hand, in some scenarios, it does not seem to make sense—for example, if an employee joined our company on April 1 and receives HRA as part of April's salary, would rent paid in April for the month of March (before he even joined our company) be eligible for a deduction just because it was paid in April?
Hence, I am seeking clarification on the same.
Regards
From India, Delhi
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For tuition fees, life insurance premium payments, medical insurance premium payments, etc., we allow the deduction on an actual (cash) basis, i.e., based on the date of payment. So my guess would be that it is the same for rent payments also. On the other hand, in some scenarios, it does not seem to make sense—for example, if an employee joined our company on April 1 and receives HRA as part of April's salary, would rent paid in April for the month of March (before he even joined our company) be eligible for a deduction just because it was paid in April?
Hence, I am seeking clarification on the same.
Regards
From India, Delhi
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Since there is no satisfactory answer to this question from last year, I would like to repeat the question and see if anyone can provide clarity on this. For claiming HRA, is the rent paid to be considered on an accrual basis or cash basis? In other words, should we consider the rent receipts date or the period for which the rent applies?
For example, for the FY April 1, 2015, to March 31, 2016 - if the employee pays rent in the following month (March rent paid on April 5th), then should we take:
(1) Rent receipts for the occupancy period March 2015 to Feb 2016, which will have receipts dated between April 2015 to March 2016? OR
(2) Rent receipt for the occupancy period April 2015 to March 2016, which will have receipts dated between May 2015 to April 2016?
Thanks for your advice.
From India, Delhi
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For example, for the FY April 1, 2015, to March 31, 2016 - if the employee pays rent in the following month (March rent paid on April 5th), then should we take:
(1) Rent receipts for the occupancy period March 2015 to Feb 2016, which will have receipts dated between April 2015 to March 2016? OR
(2) Rent receipt for the occupancy period April 2015 to March 2016, which will have receipts dated between May 2015 to April 2016?
Thanks for your advice.
From India, Delhi
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For claiming HRA, rent paid is to be considered on cash basis.. Rent is invariably paid in the beginning of the month. For your question option at (1) is the correct one.
From India, Pune
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From India, Pune
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Thank you Mr. Nathrao. Taking it on cash basis - Is this based on specific wording in any rule/notification or is there any other justification for this?
From India, Delhi
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From India, Delhi
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Difference Between Cash and Accrual Systems
Under the accrual basis of accounting, revenues and expenses are recognized as follows:
Revenue recognition: Revenue is recognized when both of the following conditions are met:
a. Revenue is earned.
b. Revenue is realized or realizable.
Under the cash basis of accounting, revenue is recognized as follows: Revenue is recognized when cash is received.
When filing IT returns, you must follow a consistent pattern of income recognition. Rent is an income that is received in advance, and the 12-month income can be easily shown in the return (01 Apr - 31 Mar). Logically, the cash basis is the correct way to show rent income.
From India, Pune
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Under the accrual basis of accounting, revenues and expenses are recognized as follows:
Revenue recognition: Revenue is recognized when both of the following conditions are met:
a. Revenue is earned.
b. Revenue is realized or realizable.
Under the cash basis of accounting, revenue is recognized as follows: Revenue is recognized when cash is received.
When filing IT returns, you must follow a consistent pattern of income recognition. Rent is an income that is received in advance, and the 12-month income can be easily shown in the return (01 Apr - 31 Mar). Logically, the cash basis is the correct way to show rent income.
From India, Pune
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