Here is how to enjoy tax exemption on HRA and at the same time save yourself from future notices and penalty from Income Tax Department
You already know submitting rent receipts to your company’s human resource department can help you save taxes. But, what you may not know is that submitting a fake rent receipt can put you in trouble with income tax department.
Let me explain, a recent judicial pronouncement has given powers to your assessing officer to check all your documents to see whether the House Rent Allowance (HRA) claimed by you is genuine or fake.
So, what we do to avoid such situation?
In this blogpost, we are going to tell you the correct way of claiming HRA exemption - to help you enjoy tax exemption and at the same time save yourself from future notices and penalty from income tax department.
Here’s how you can legitimately claim HRA tax exemption-
Reside in that house
Employer gives you HRA to help you meet costs of accommodation. Government gives you tax exemption of almost 60% to help you save more money. So, be honest if you are claiming HRA tax exemption, then reside in that house. But, if you have your own house and still have HRA as a component in your salary. Then, in such a situation talk to an expert to help you plan your taxes.
Avoid payment in cash
Become cashless. As far as possible do not pay rent in cash. Even if you are paying electricity and water bill, we suggest you to pay through bank. Preserve the copies of water , electricity bill & rent receipts. But if you still have to pay in cash then put a stamp of Re 1 on the rent receipt. This documentation is a must while claiming HRA.
Pay TDS on rent
If you pay monthly rent of Rs. 50,000 or more then from June 2017 you need to deduct TDS on payment and pay to government treasury.
Have your documents in place
One thumb rule when dealing with money is keep your documents ready. Whenever you take a house on rent, take one step further and sign a rent agreement with your landlord. Ensure all the details of your terms with your landlord should be stated very clearly in the agreement.
Claim correctly in your income tax return
The tax department is increasingly leveraging technology to keep a watch on tax-payers. In case, you had claimed fake HRA, then avoid trouble at the time of filing your income tax return. So, when you are filing your income tax return pay the tax that you had saved under the curtain of fake rent receipt.
We keep getting this query
I paid rent to my parents, and even submitted rent receipt to HR to avail tax exemption. Will I get a tax notice?
Not necessary. If you have been genuinely paying rent to your parents. It is advisable to have a rent agreement in place. Also, your parents need to show rental income from you at the time of filing their income tax return.The writer is co-founder of Tax2Win