Sep 162014

HOUSE RENT ALLOWANCE – Departmental Control

What are the dependent factors in calculating HRA exemption for the salaried individual?

Keep four aspects in mind:-

  1. HRA received,
  2. The actual rent paid and
  3. Where you reside, i.e., if it is a metro or non-metro. * caution – place of residence is significant and not place of employment.
  4. The place of residence is significant in HRA calculation.

Imp:- The above factors shall be calculated on monthly basis.

What are the conditions for availing exemption of HRA?

– He must stays in a rented house.

– He is in receipt of HRA from his employer.

– Employee must actually pay rent for the house which he occupies.

Caution – The rented premises must not be owned by him. In case one stays in an own house, nothing is deductible and the entire amount of HRA received is subject to tax.

Can I pay rent to my parents or spouse to avail HRA benefits?

Relationship parents spouse Children Other relatives
As per tax rule No restriction No restriction No restriction No restriction
Tax impact on recipient To account for the same under ‘Income from other sources’. [Sec 56] To account for the same under ‘Income from other sources’. [Sec 56] To account for the same under ‘Income from other sources’. [Sec 56] To account for the same under ‘Income from other sources’. [Sec 56]
Practical view Practically possible In view of the relationship when you take up residence together, you are expected to do so and hence such a transaction does not bear merit under tax laws. Sham transactions can only spell trouble under scrutiny, so steer clear of these. Practically possible Practically possible

What are proof for HRA claim?

– Proof of rent paid through rent receipts, for which only two need to be submitted, one for the beginning of the year and one towards the end of the financial year.

– It should have a one rupee revenue stamp affixed with the signature of the person who has received the rent, along with other details such as the rented residence address, rent paid, name of the person who rents it etc.

– PAN No of house owner in case rent paid by employee is more than ₹ 100,000. [Circlular No. 08/2013 F.No. 275/192/2013-IT(B) dated 10.10.2013]

Can I simultaneously avail tax benefits on my home loan and HRA and also show rental income in my tax return?
No restriction in case you have proper justification for the same.

Special attention:-

Practical cases seen:-
There are cases where employees pay their rent in cash and landlord refuses to provide any rent receipts.

What employees do-
Employees prepare rent receipts themselves and do forge signatures. Also there might be cases where employees actually do not pay any rent but still prepares rent receipts.

Legal consequences:-
These all are covered under forgery cases and offences under giving false evidence and fabricating false evidence of IPC (Section 191 & 192).

What employer should do if such cases are identified in his company:-
Sack the employee.