How to claim HRA exemption at the time of filing income tax returns

Most salaried individuals get confused when it comes to claiming exemption on one’s House Rent Allowance (HRA) while filing tax returns. However, here is a lowdown to make the process simple for the taxpayer.

It is important to know that you can claim HRA exemption benefit only when you are living in a rented house. Those who live in their own house cannot avail tax exemption benefit on HRA.

Much before you get your Form 16, the exempt HRA amount can be seen in the tax projection statement provided to you by your employer at the beginning of the financial year. The employer deducts the HRA from salary. When it comes to filing of ITR, you can view the deduction in Part B of your Form 16.

The best way to get HRA exemption is to mention the amount in the declaration form provided to you by your employer at the start of a financial year. Aarti Raote, Director, Deloitte Haskins and Sells LLP said it is advisable that the employee claims HRA through the payroll to avoid a mismatch between the tax return and Form 26AS. In case the employee is unable to claim the same through the employer, then he or she can claim the same while filing the yearly tax returns. “This can be done by computing the amount of exemption for HRA and reflecting the same in the place provided in the salary appropriate schedule in the return form,” she said.

“While seeking tax benefits on HRA, if one fails to justify the deduction of the amount from the total income it can attract penal consequences under the provisions of the Income-tax Act, 1961. The amount of HRA, in any case, will get reflected in Form 16 issued by the employer,” said S Vasudevan, Partner, Lakshmikumaran & Sridharan.

The deduction for House Rent Allowance (HRA), under section 10(13A), is generally availed by the employee through the payroll by providing requisite supporting documents and also, meeting the necessary conditions. To claim HRA, you need to have relevant documents with you. The supporting documents for this purpose would be rent agreement, rent receipts. If the amount of rent exceeds Rs 1 lakh per annum the PAN of the landlord is also necessary. In case the landlord does not have a PAN, a declaration to this effect should be obtained from him, along with his name and address details.

An employee generally has to submit all relevant documents with their company Human Resources department. However, the tax authorities do not require an employee to submit documents to them. “While supporting documents are not required to be submitted with the tax return, it is necessary to ensure the same is readily available in case there is a query from the tax office/Central Processing Centre (CPC),” said Raote.

Also, individual taxpayers not receiving a house rent allowance (could be non-salaried individuals as well) could claim a deduction for their rental expenses based on Section 80GG subject to specified limits.

You should not file wrong information in ITR forms otherwise you may have to pay a penalty. Vasudevan said that a new provision introduced vide Finance Act, 2016, brought in the concepts of underreporting of income and misreporting of income. “Mis-reporting of income has been defined to mean, inter alia, misrepresentation or suppression of facts or claim of expenditure not substantiated by any evidence. Therefore cases involving the wrong claim of exemption HRA by furnishing false rent receipts, where rent cannot be justified would clearly attract penalty at the rate of 200% of the amount of tax payable,” he said.