Maximizing HRA Exemption: Navigating Common Scenarios and Tax Benefits

The Home Rent Allowance (HRA) deduction can be used by salaried people who rent an apartment to completely or substantially offset their tax obligations. The top three situations that people encounter while requesting an HRA exemption are listed below.

The HRA, or Home Rent Allowance, is a crucial component of an employee’s compensation package. HRA isn’t entirely taxable, unlike your base pay. A portion of it is excluded under Section 10 (13 A) of the Income Tax Act of 1961, subject to certain conditions. You must give your employer the rent receipts in order to qualify for the HRA exemption. If the rent you pay is greater than Rs. 1 lakh per year, or Rs. 8,333 per month, you must mention the owner’s PAN number.

While some people could find it simple to take full use of the HRA exemption, others would find it more difficult, particularly those who have moved throughout the year. One such dilemma that perplexes many of us is whether to ask for the landlord’s PAN or not.

Here are three common situations and how to handle each of them when obtaining an HRA tax exemption.

Case I 

When the annual rent is less than Rs. 1 lakh but the monthly rent exceeds Rs. 8,333

If you recently moved from privately held housing to rented space, this confusion is more likely to happen. Imagine that you are visiting your family in a city. But, you were required to leave the residence in the middle of the fiscal year and move into rental housing with a monthly rent of more than Rs 8,333. In this situation, you are eligible for HRA without providing the landlord’s PAN number. The Central Board of Direct Tax (CBDT) stipulates that quoting a PAN is only required when the annual rent exceeds Rs 1 lakh.

Case II 

When you and a friend/s share rental space

It is advisable to obtain a copy of the lease agreement, which clearly lists the names of all lessees and the amount of rent paid by each, if you are renting an apartment with a friend. As an alternative, you might present the landlord with a statement outlining your monthly rental contribution. You want to bring a duplicate of the rent receipts with you just to be cautious. Also, it is wise to use either a cheque or net banking to pay the rent in these circumstances. This demonstrates that you have been paying rent each month.

Every salaried employee is allowed to claim HRA exemption under Section 10 (13 A) of the Income Tax Act, provided that his or her name is specified in the rental agreement, according to CA Rishabh Pallav, Partner, Sushil Kumar Sharma and Company. The minimum amount that can be deducted is equal to the sum of the actual rent paid less 10% of the basic salary, or 40% of the basic salary in a non-metro city, or the actual HRA received.

Case III

When you relocated two or three times in a single fiscal year

In this situation, the employee must obtain monthly rent receipts rather than accumulating them all at once at the conclusion of the fiscal year. If the total of all of your monthly payments is less than Rs. 1 lakh, you are exempt from obtaining the owner’s PAN. As an illustration, if you paid Rs 8,000 in rent per month for six months, moved, and then paid Rs 7,000 per month for another six months, your total yearly payment would be Rs 90,000 (48,000 + 42,000). You should not include the PAN number of the payer because the annual payment is less than Rs.

Claiming HRA and house loan benefits together

Legal provisions allow one to employ more than two homes, even if not all of them are his own, and to be eligible for HRA and home loan advantages. For instance, you are still eligible for the HRA even if you rent in Delhi because of your job and own a home in Bangalore. There are no clauses in Section 80C 24(b) or Section 10(13A), which deal with the tax benefits related to HRAs and home loans, that prevent you from claiming an exemption for either a home loan or an HRA, or both. According to the adjustments suggested in the Finance Bill 2019, you can utilize both.

Employees can save a lot of money on taxes by using the HRA deduction. Notwithstanding the situation, you must provide your employer proof of your rent payment in order to request HRA. Hence, if necessary, you can also get a written rent receipt from your landlord.

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