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Salaried person? Here’s all you need to know about HRA tax deduction, how to claim it

Source | Business Today : By Renu Yadav 

If you are a salaried person, you are most likely receiving a big chunk of your salary as House Rent Allowance (HRA). In order to lower the tax burden, the Income Tax Department allows a taxpayer to claim tax deduction against HRA if he or she is staying on rent (if the taxpayer is staying in his or her own house, the entire HRA is taxable).

However, if you are claiming deduction for HRA, you need to be careful and provide proper proofs. Recently, the Mumbai Income Tax Appellate Tribunal took up a case where a person claimed to have paid rent to her mother, for which she claimed HRA deduction, but could not produce any evidence such as lease/rent agreement, letter to society intimating about the tenancy, bank statement, proof of cash payments, electricity/water bill payments through cheque, etc. Also, her mother didn’t disclose such income in her tax return. As there was nothing to prove the tenancy, her claim was rejected. The ruling did not say anything new but reiterated the requirements for proving the genuineness of the HRA claims that the income tax department could verify. The ruling puts the tax department in a stronger position to examine such claims in detail.

“The income tax department is taking cognisance of the fact that the HRA deduction is a major chunk of claims by salaried individuals. This is evident from compliance requirements such as furnishing of the landlord’s PAN if the rent is more than Rs 1 lakh per annum and withholding tax if the rent is beyond a certain limit. Hence, taxpayers need to be more careful,” says Amit Maheshwari, Partner, Ashok Maheshwary & Associates LLP.

It is easy to claim HRA exemption. One has to just submit rent receipts to the company. But if your claim comes under scrutiny, you will need proper proofs. It is important that you understand HRA deduction rules.

Calculating the Deduction

The HRA depends on four things — the rent you pay, your salary, the HRA you receive and where you live (metro/non-metro city). The tax deduction is calculated on an annual basis. If you change residence in between, you will have to recalculate the exemption as per the changed rent.

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