House Rent Allowance (HRA) Claims Comes Under Tighter Scrutiny - Things To Note

Are you availing House Rent Allowance (HRA) exemption from your employer? 

Then, you must pay close attention to a recent verdict from Mumbai Income Tax Appellate Tribunal that calls for a tougher scrutiny of HRA claims submitted by employees for exemption purposes. The new guidelines issued by the tribunal confers greater power in the hands of the assessing officer to demand proof from the employee to verify whether the tenancy is genuine or not. 

HRA is a key component of salary for salaried individuals that can easily help them save nearly 60% of the allowance from taxes. Submitting rent receipts was considered enough to avail the exemption until now. But this is expected to change with more stringent rules in place that may require a tenant to present electricity bill, water bill, leave and license agreement, etc. to receive the benefit. Also, actual outflow of rent to the landlord via bank account transfer might become a necessity in coming days, particularly when the government is trying to drive the economy towards cashless economy. 

Understanding The Deeper Impact

The guidelines should sound an alarm to those tax payers who are submitting rent receipts in the name of their close relatives such as brother, sister, mother or father residing in the same city. Also, showing rental payments through cash instead of bank transfer can further lead to suspicion and must be avoided in all cases. Tenants who are currently residing in a rented house should arrange for sufficient proofs every year to keep away from income tax scrutiny. 

Things To Do To Avoid Rejection of HRA Claim

• First and foremost, all rental payments should be accounted through bank transfers only. 
• If you are residing in your relative’s house and claiming HRA then make sure to enter into a proper rent agreement. All exchange of emails or money in this regard should also be recorded. 
• Relative receiving rent from you should file his or her income taxes and should show it as receipt of rental income. Needless to say, assessing officers can easily cross-check this aspect to confirm the validity of a claim. 
• It is difficult to claim HRA for a rented house when you already own a house in the same city. However, if the owned house is situated outside the city then such claims are acceptable. 
• A point to remember that the rent of any property should not exceed the fair rental value of the similar property in the neighbourhood or locality as it may lead to rejection. 
• Married woman cannot claim rental payments to her father or mother while actually residing with her husband and in-laws. 
• Bank statements and other proofs of residence should bear address of the rented premises to further substantiate the claim.

About The Author: Reenika Avasthi is associated with Inverika Investment Solutions LLP as a Content Writer and Financial Planner. She is a Certified Financial Planner and a freelance content writer in the field of personal finance. Her interest in writing and spreading investor awareness motivated her to start blogging.

Visit www.facebook.com/Inverika to learn more.