How to Claim HRA: House Rent Allowance, generally known as HRA, is an aggregate paid by employees as part of their earnings. This is mainly done as it helps offer employees tax profits towards the payment for housings every year.
How much HRA allowance requires to be paid to the employee is made by the employer based on several different conditions such as the city of residence and the salary. The house rent allowance serves to be quite advantageous to salaried employees in India, and it is regulated by the provisions of Section 10(13A) of the IT Act.
To claim HRA, you need to submit the PAN number of your house owner, receipts and Lease agreement to your landlord. In this article, we inform you about how to claim HRA from the employer. What is a rental agreement? Should you get the rental agreement made registered and notarized? Can you claim HRA by paying rent to parents, brother, sister, wife/ spouse or sister–in–law? Do you need to get a revenue stamp? What is the format of rent receipts, how many rent receipts to submit?
- Basis on Which HRA is Calculated and Decided
- How to Acclaim HRA from your Employer?
- Rental Agreement and Notary
- Rent Receipts
- Rental Agreement and Stamp Paper
- FAQ’s about HRA
Mainly, HRA is decided based on the salary. Although some other elements also affect HRA, for example, the city in which the employee lives. In case the person lives in a metro city, she or he is entitled to an HRA equal to 50% of the salary.
The entitlement is 40% of the wage for cities other than a metro area. To calculate the HRA, the earnings are explained as the aggregate of the basic salary, dearness allowances, and commissions. If a worker does not receive a dearness allowance or a commission, then the HRA will be around 40% – 50% of the salary. The actual HRA provided in all probability will be the lowest of the given three provisions:
- The exact amount received as the HRA from the employer.
- The actual rent that is paid should be less than 10% of the basic earnings.
- In case you’re staying in a non-metro city, 40% of the basic salary and 50% if you live in a metro city.
The employer issues HRA or House Rent Allowance to the employee to meet of the employee’s accommodation for his residing causes. Income Tax Department has systemized the way of declaring HRA by introducing Form 12BB.
Your TDS will be adjusted, so you don’t have to pay tax on HRA, and your final tax liability will be deliberated accordingly. To acclaim HRA from your employer, you need to provide the following information to your employer:
- Reside physically: you must reside physically in the house mentioned by you for claiming HRA exemption. In case your landlords are your parents, you have to ensure that they include the rental income too while filing their returns.
- Rental agreement or lease: you have to sign up for a valid lease with the landlord. This lease will have information on the lodging on a lease, the rent agreed, and the lease period. For the shared accommodation case, you also have to mention the number of tenants co-sharing the accommodation, the ratio in which rent is divided, and how the utility bills are split and the before mentioned details in the rent agreement. Your employer might ask for this document.
- PAN number of landlord: it is mandatory to obtain the PAN number of the landlord if the annual rent paid by you is more than Rs. 1,00,000 and report it to the employer to acclaim HRA exemption. If PAN is not available by chance, then your landlord must be willing to offer you a declaration to this effect. Alongside the statement, you need to gain ‘Form 60’ dully filled up by your landlord, in case the PAN number is not available. If your landlord is not offering you a PAN number, the maximum amount of HRA that you can claim is Rs. 8,333.
- Rent Payments: Instead of cash, try to make payments, preferably through banking channels. Using banking channels, you can provide an electronic trail of money for the transactions that had occurred.
- Rent Receipts: The employer must collect proof of rent payment from permitting you the exemption on HRA. The employer will offer you the exemption on HRA based on these receipts. Tax exemption will be evaluated only based on the rent receipt given by the employee mentioning the amount paid. Any amount paid above or over the rent receipt shall not be considered for exemption by the employer. It is mandatory to produce rent receipts to the employer for claiming HRA exemption for the monthly rent paid more than Rs. 3000 per month. Typically, employers require receipts for three months or so.
- Form 16: HRA or House Rent Allowance exemption would be evaluated by your employer and shown in Form 16 if rent receipts and rent agreement were submitted on time. One needs to show HRA in the calculation of Income from Salary in ITR.
- TDS: Tenants paying Rent to NRI landlords should remember to deduce TDS of 30% before making the payment towards rent. Remember to conclude tax at source at 5% from the rent paid to your landlord if you are paying rent above Rs. 50,000 per month. Interest at 1% per month is levied if you forget to deduct it and 1.5% per month where TDS is deducted but not deposited. It would also give you a penalty of Rs. 200 per day for the period of delay.
Notarization usually alludes to check and giving a seal of validness to a document. This is done by a Notary who is delegated under the Notaries Act. Registration then again in registering the record with a neighbourhood Sub-Registrar office. The systems for both are represented by various Acts and can consequently be considered two completely multiple methods.
In India, it isn’t required to notarize a tenant contract. As long as it is imprinted on Stamp paper and is signed by the two parties and two observers, it is viewed as restricting. Nonetheless, if you wish to notarize it, you may do as such.
The work of the notary official is to confirm everything in the document and validate the record whenever everything is discovered to be authentic about the report, just as the deponent.
A Notary public is somebody delegated by the State/Central Govt. what’s more, his/her essential obligation is to dissuade fakes and imitations by directing/seeing record marking and realness check. Aside from this, Notary Public additionally performs duties like promise organization, testimony marking, record support and performing wedding functions.
There is no proper format of rent receipts. It should include the landlord’s name, rent amount, address of the rented place, landlord’s PAN information and the duration for which rent is received.
You don’t require the revenue stamp if you are paying rent via cheque or online. Revenue stamp is only required if payment is made in cash and receipt is more than Rs. 5000.
According to the Law, when one does a few exchanges like purchasing and selling land, business arrangements, renting property, one must make pay Stamp Duty to Central/State Govt.
The obligation to be paid fluctuates from one state to another, and if a state doesn’t have its Stamp Act, it will be supervised by the Indian Stamp Act. Stamp papers are verification that the necessary Stamp Duty has been paid to the Govt., similar to receipts.
The Stamp Paper esteem (Stamp Duty) relies on State to State. For instance, in Delhi, the Stamp Paper sum gave by Government to the Agreement is Rs. 50 whereas in Bangalore Rs. 20.
The Stamp Paper worth of Rent Agreement isn’t settled on the lease fixed between parties yet is chosen according to the stamp obligation set by the State Government. The scope of Stamp Duty for tenant contract is, for the most part, Rs 20, Rs 50 and Rs 100. You confirm with your manager if there is some cutoff on stamp paper.
We hope that this article helped you assess and understand how to claim HRA from your employer, rent receipt and rental agreement format.
What are the most significant advantages of HRA?
A significant advantage of the house rent allowance is that it serves as a medium to deduce the taxable income, leading to a reduction in the tax that you have to pay.
Can I acclaim HRA while filing ITR if I cant submit proof to the employer on time?
Yes, you can acclaim HRA while filing ITR if you cant submit proof to the employer on time. During Income Tax Act doesn’t restrict the employee from claiming tax exemption for HRA while filing returns.
Still, there will be a discrepancy in the salary income reported in Form 26AS by your employer opposite that reported by you in your return. This may be swift for the department to send a communication seeking a response regarding the discrepancy.
If you haven’t acclaim HRA exemption from your employer, you can claim it directly. This exempt amount has to be deducted from your taxable earnings. The total net amount is shown as your’ income from salary in your income tax return.
If you acclaim HRA exemption in your tax return, you must still maintain rent receipts and lease agreement safely in your records if the assessing officer asks for them afterward.
Can I claim HRA exemption paying rent to my spouse/wife?
No, you cannot. If you pay your rent to your spouse, this doesn’t qualify for HRA exemption because, as per the income tax department, you are originally supposed to stay with your spouse.
Can I claim HRA if it’s not part of my salary?
Yes, if you are making payments in the rent for unfurnished or furnished lodgings occupied by you for your residing purposes but do not receive HRA from your employer, you can claim deduction under section 80GG.
Can I acclaim HRA for two houses?
No, unfortunately, you cant. The HRA advantages are only available for one house in the concerned city of the workplace.
Can I claim HRA exemption paying rent to my parents or brother/sister-in-law?
Yes, you can claim exemption on rent paid to others, including parents, brother or sister-in-law.
What is a Rental Agreement?
A rental agreement is a commitment of rental mainly written between the owner of a property and a tenant who desires temporary possession. It is usually different from a lease which is more traditionally used for a fixed term.
The agreement identifies the parties, the property, the amount of rent for the period, and the rental period, as a minimum. The property owner might be referred to as the landlord/ lessor and the renter as the tenant/ lessee.
It is essential to have a rental agreement as it protects a landlord and tenant’s rights. It is also a method to avoid unnecessary eviction and hikes without prior notice of a minimum of one month. The rent agreement is also done online through the drafter.in, legaldesk.com, etc. The standard rent agreement is usually made of only 11 months.
What should you include in a rental agreement?
A rental agreement or residential lease is the blueprint of a tenancy, and it lays out the right and responsibilities of both the tenants and landlords. It is a binding contract that both the parties can enforce in court and a convenient document full of business details like how long the tenant can occupy the property and the amount of rent due each month. Here we have included a list of what you should include in a rental agreement:
- Names of All occupants and tenants: Every adult who resides in the rental, including both members of an unmarried or married couple, should be named as tenants and sign the rental agreement. Requiisiting all adult occupants to be official tenants is a form of additional insurance for landlords.
- Description of Rental Property: Incorporate the complete address of the property (including unit and building number, if applicable). You will also want to note any specific parking spots or specific storage that are included. For instance, if the rental consists of assigned parking, be sure to write in the site or stall number.
- Term of the Tenancy: Rental agreements create short term tenancies that renew automatically until the landlord or tenants terminate. In contrast, leases make tenancies that end after a specific term. Whichever you use, be sure: note the starting date, the length of tenancy and the expiration date in case of lease.
- Rental Price: never write the amount of rent- spell out when and how it is being paid, like by mail to your office. To avoid confusion, spell out details like a. method of accepting payments. b. whether you charge a late rent charge, the amount of the cost, and the grace period. c. any charges if a rent check bounces.
- Security Deposits and Fees: Refrain from some of the most common disputes between tenants and landlords by being clear about the amount of security deposit, how you might use the deposit, whether you expect the tenant to replenish the deposit in the event you have to make a deduction mid-tenancy, when and how you will return the deposit and account for deduction after the tenant moves out, any non-refundable fees etc.
- Repair and Maintenance Policies: your best defence against rent-refusing battles and hassles over security deposits clearly explains your repair and maintenance policies.
- Landlords right to enter rental property: to avoid tenant claims of illegal entry or violation of privacy rights, your rental agreement or lease should clarify your right to access the rental.
- Rules and Important Policies: Some of the primary essential practices you can include are no illegal activity, smoking, pets etc.
- Contact information: Consider tenants requiring to contact you in writing about specific matters. Although instant messaging and texts might work for some discussions, you should be able to keep a reliable and printable in the event you ever need to show the court record of communications with your tenants.
- Required landlord disclosure: federal, local, and state laws may require you to disclose specific information in your lease or rental agreement.