Missed declaring rental to employer? Claim HRA exemption while filing ITR

Keep rent receipts that serve as proof handy should taxmen come calling

Did you pay rent in 2021-22 and also receive house rent allowance (HRA) as part of your salary? In that case, you can save on tax payment, provided you have proof of the rent paid. If you did not submit the HRA documents to your employer, the HRA section in your Form 16 will be considered taxable. However, there is a way out.

Ankit Jain, partner, Ved Jain & Associates, says, “Salaried individuals who have not furnished their HRA documents to their employers can still submit (or even rectify) the details of their rent at the time of filing their income-tax return (ITR).”

Exemption you are eligible for

The HRA exemption a person is eligible to is the minimum of the following: rent paid is less than 10 per cent of basic salary, 50 per cent of basic salary for a metro city, or 40 per cent of basic salary for a non-metro city, or total amount received as HRA.

If you have submitted your rent documents to your employer on time, your Form 16 will show the HRA section as tax-exempt.

Depending on the criteria mentioned above, either full or part of your HRA could be exempt.

Maneet Pal Singh, partner, IP Pasricha & Co, says, “If any part of your HRA is taxable, it will be added under the head ‘Gross Salary’ of Form 16. The tax-exempt part will be displayed under the ‘Allowances’ section.”

Get higher tax deducted at source (TDS) refunded

You can either calculate the HRA amount that is tax-exempt manually, or use an online calculator. Once the calculation is done, it needs to be furnished in the ITR form.

Mukul Chopra, senior partner, Victoriam Legalis-Advocates & Solicitors, says, “While filing the return, deduct the tax-exempt HRA from the gross salary. In case you did not submit the rent receipts to the employer, you can also claim HRA exemption while filing ITR. In this scenario, the employer will deduct a higher TDS amount. Once ITR is filed, the excess TDS will be refunded to you.”

What happens in special situations

Under certain circumstances, a person can claim both HRA exemption and tax deduction on home loan.

Deepak Jain, chief executive, TaxManager.in, says, “If an assessee owns a property in another city, or if his/her property is rented out, he/she can enjoy the benefits of both home loan and HRA.”

Deduction can be claimed under Section 80C for the principal and under Section 24 for interest payment, alongside HRA exemption.

“There is no legal restriction on availing of both,” says Jain.

Another scenario is where a person stays with his/her parents or other family members and pays rent to them.

“In such a case, the individual must not be the owner or co-owner of the house, according to the ownership documents. His/her spouse or minor child should not be the owner either. The I-T authorities could analyse such cases for genuineness,” says Chopra.

Submit all valid documents and receipts while filing ITR. The recipient of the rent (the parents) must also show the rent as “income from other sources” in their ITR.

If you are not entitled to HRA for any reason, you can claim deduction under Section 80GG of the I-T Act. The precondition for availing of it is that you should not have received HRA during any part of the year.

“Your spouse or minor child should not be the owner of a house in the same city. Fill Form 10BA to avail of this benefit,” says Jain.

Be prepared for scrutiny

If you claim HRA exemption at the time of filing your tax return, keep all documents that serve as proof handy.

“Due to a mismatch between Form 16 and the ITR form, the tax department could select your return for limited scrutiny. You will then have to furnish these documents and prove the genuineness of your HRA claim,” adds Jain.

How to calculate HRA tax exemption

The deduction available is the least of the following amounts:

a. Actual HRA received

b. 50% of basic salary + DA (dearness allowance) for those living in metro cities

c. 40% of basic salary + DA for those living in non-metros

d. Actual rent paid should be less than 10% of basic salary + DA

e. Alternatively, you can use the HRA calculator available on the income-tax website: https://bit.ly/3bsk8cw

Sources: Cleartax.in, income-tax website