Income Tax Return 2024: 5 Key Considerations Before Availing HRA Exemption

For taxpayers, the significant decision lies in choosing between the old and new tax regimes. The new tax regime aims to benefit individuals with fewer deductions, while the old one is more suitable for those eligible for various exemptions and deductions, such as House Rent Allowance (HRA), health insurance, home insurance, and deductions under section 80C like Public Provident Fund (PPF), Employee Provident Fund (EPF), insurance, and Equity Linked Saving Schemes (ELSS), among others.

It’s crucial to recognize that the choice of the tax regime is subjective and depends on individual circumstances. Taxpayers should carefully evaluate the benefits available under both regimes before making an informed decision. Specifically, for taxpayers claiming HRA under the old tax regime, here are five important considerations before claiming the exemption:

1. HRA Calculation: HRA is not fully exempted. The exemption is allowed at the least of the following:

• Actual HRA received by the employee
• 40% of basic salary for a non-metro city or 50% of basic salary if the rented property is in metro cities like Mumbai, New Delhi, Kolkata, and Chennai
• Actual rent paid less 10% of basic salary It’s important to note that HRA deduction is only available for rent paid for residential premises and does not include the cost of utilities like electricity, gas, etc.

2. Documents Required for HRA: Employees claiming HRA exemption need to submit evidence, including details of rent paid, the name and address of the landlord, and the landlord’s PAN if the aggregate rent paid exceeds Rs 1 lakh. If the landlord does not provide a PAN, the employee should obtain a declaration in Form 60 from the landlord, ensuring that the landlord’s total income declared does not exceed the maximum amount not chargeable to tax. There are no restrictions for claiming HRA deduction on rent paid to parents/relatives, but maintaining a paper trail of payment and proof of lease is advisable. Rent receipts submitted to the employer for amounts above Rs 5,000 per month should be affixed with a revenue stamp.

3. HRA and Home Loan Benefits: There is no restriction on claiming simultaneous tax benefits for HRA and a home loan for the same year if the conditions prescribed under tax laws are satisfied. To claim HRA benefits, one must actually be paying rent for the residential accommodation occupied, not owned by the taxpayer. HRA benefits are calculated for the period for which rent is actually paid, not for the entire year. You can claim the interest for the whole year even if you have obtained possession of the house on the last day of the financial year.

4. Rent Exceeding Rs 50,000 PM: Salaried employees paying rent exceeding Rs 50,000 per month should ensure that TDS at 5% is deducted and deposited as per section 194IB. A challan cum statement of deposit in Form 26QC should be submitted to the employer along with the rent receipt.

5. Bogus Deductions and Claims: Avoid claiming deductions that do not apply to you. Falsely claiming deductions like HRA without proper reflection in your Form 16 can attract the tax department’s attention, leading to potential investigations into the authenticity of such claims. It is crucial to be cautious and truthful in your deductions.

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