HRA stands for House Rent Allowance. This makes up a component of salary that is provided by an employer. This is meant for employees to pay for their rented accommodations. This is meant for those who live in rented accommodations only. This is also a method to save tax.
How is HRA calculated?
HRA is calculated based on ?
- Gross Salary
- HRA Percentage of Salary
- House Rent minus 10% of basic salary
- 50% HRA if the employee is staying in a metro city and 40% HRA for non-metro cities.
What proof is required to claim HRA?
To collect your HRA all you need to do is show proof that you are paying rent, this is done by submitting your Rent Receipt. This is submitted to your employer and they will give you an exemption on your HRA based on these receipts. Your tax will be calculated based on theis and you will not need to pay tax on the HRA amount.
What is a Rent Receipt?
Just like a receipt from a shop is proof of a purchase, a Rent Receipt is proof of rent paid from a tenant to a landlord. If you are still paying rent in cash, a receipt signed by the landlord is the only proof you will have of this transaction taking place. If you use cheques, credit cards or other online methods of payment there will be some proof of the transaction, but it is still advised to collect a rent receipt from your landlord.
Are rent receipts needed for every month?
This requirement changes from company to company. Some ask for only 3-6 months whereas a few companies require all 12 months to be submitted. It?s best to check with the HR or accounts department of your organization.
Is the landlord's PAN number required in a Rent Receipt?
The landlord?s PAN is required only if you pay more than Rs.1,00,000 annually on rent. Without this PAN you will not be able to claim HRA. IF your landlord does not have a PAN account, then you need to get a declaration from him stating the same.
What happens when I stay in a rented home for only a few months?
The good news is, you can claim HRA for the moths that you were paying rent and have a rent receipt for. So, if you have stayed for 3 months or 6, you can still claim HRA.
What happens when my landlord refuses to provide rent receipts?
Most landlords will not and should not deny you a rent receipt, but before moving into a home you need to inform the landlord that you require a receipt every month. It?s best to have this discussion before you sign the rental agreement so as to avoid any possible issues.
Can I claim HRA on my own?
Yes, you can, this will be done when you are doing your tax returns.
Does the rent receipt need to be on paper or is a soft copy enough?
This varies from organization to organization, it is best to check with your company or employer as to what they require.
If I change jobs, will the new company need my old Rent Receipts?
As soon as you shift jobs, your new employer will inform you of all the documents that you need to submit. As part of these documents, your rent receipts should also be mentioned. In the case where your current employer is allowing you HRA exemptions from previous one, you will need to submit the old rent receipts as well as the new ones.
Does HRA exemption apply to me if I pay rent to my family?
Yes, you can. The only catch is the place that you are claiming rent for can't be owned by you. If you are living with your parents and the house is in their name, and you pay them rent, you can still claim HRA.
This does not mean you can simply claim that you are paying them money for rent, you need to have authentic rent receipts and also bank records that show monthly transactions for the same amount. If the tax department does not think that the claim is authentic, you could get into trouble.