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Rules for claiming tax benefit on HRA tightened

As you would be aware, u/s 10(13A) of the Income Tax Act, the House Rent Allowance (HRA) received by you as an employee is eligible for certain tax benefit. 

The exemption allowed is minimum of the following:
a)  The actual amount of HRA received
b)  Actual rent paid minus 10% of the salary
c)  50% of the salary (in a metro city) / 40% of the salary (for any other city)
(Note: Here the definition of ‘salary’ includes your basic + DA, but excludes all other allowances and perquisites).

The balance HRA, if any, is added to your taxable income and taxed as per your income slab.

No exemption in HRA is available if you are staying in your own house, your spouse’s house or where you are not paying any rent. But if you are staying with your parents and they own the house, you can pay rent to them and claim HRA benefit. However, this would become taxable income for them.

Rent receipts are not required for claiming deduction, if the rent is below Rs. 3,000 p.m. The rule, however, clarifies that this relaxation is only for the limited purpose of TDS deducted by your employer. At the time of assessment of your IT return, the tax officer can ask you to show proof of such payments. 

Further, if the annual rent exceeds Rs.1 lakh per annum (i.e. Rs.8333.33 per month), it is mandatory to submit to the employer 
a) either the PAN No. of the landlord, or
b) if the landlord doesn't have a PAN No., a declaration of the same from the landlord together with his name and address.

Earlier the minimum rent limit for providing PAN No. was Rs.15,000 p.m. The new reduced limit of Rs.8333.33 would bring many tenants and landlords under the purview of this revised rule and is likely to curb tax evasion by landlords on their rental income.

By the way — there is no restriction on claiming tax benefit on both the HRA and the Home Loan. So, if you have taken a loan to purchase a house but are staying somewhere else on rent, you can subject to certain conditions get both the HRA tax benefits as also the tax benefit on interest / principal repayment.

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