Everything There Is To Know About HRA

An exhaustive FAQ with respect to HRA that everyone needs to keep handy.

  1. What is HRA?

HRA or House Rent Allowance is a grant provided by employer to employee to meet the cost of living in a rented house at the employer’s work location. Such HRA forms parts of the salary that employee receives from employer every month.

  1. What is the tax exemption available in relation to HRA?

Least of the following is exempted:

  •  Actual HRA received from the employer
  •  Rent paid – 10% of the salary
  •  50% of Salary, in case the employee resides in metro cities, otherwise 40% of salary
  1. I stay with my parents/relatives. Can I take HRA benefit?

Of course, you can! However, this is only possible if you have entered into an agreement with them and actually make the payment every month, preferably by cheque.

*Quick tip*: Avoid claiming tax benefits on rent payments made to the spouse as the arrangement can be characterized as a sham transaction, say experts.

  1. Can I pay rent by cash?

Yes, you can. However, it is advisable to make bank transfers or cheque payments for future references.

  1. How does HRA flow back to the owner/parents?

Owner/Parent will taxed for the rental income after a 30% deduction.  If they are retired and do not derive any significant taxable income, the rent would be tax free in their hands.

*Quick tip*: It gets better if the property is jointly owned by both parents. Then you can divide the rent two-ways so that the tax liability gets split between the two individuals.

*Quick tip*: If their income exceeds the basic exemption limit, you can help them save tax by investing in their name under Section 80C options

  1. Can I claim HRA and Home loan deduction at the same time?

Yes, only where you are staying and paying rent as well. One of the cases this is frequently seen is where home is bought are in 2 different cities.

  1. I am a self-employed person, Can I claim HRA?

No, as you are not receiving a formal salary. However, you can claim a deduction under section 80GG of the Income Tax Act for the rent incurred on the residence.

  1. What is considered as an evidence that I am paying rent?

Rent agreement or rent receipts is the proof. Please note that you will have to submit copies of rent receipts or rent agreement, depending on what your organisation stipulates.

  1. Is there any role of PAN card number here?

Yes, if rent paid by you is more than Rs. 1 lac per year, you need to submit pan card details of the owner. In case the owner do not have Pan Card, a declaration will do.

  1. Is there any particular format for rent receipt?

No particular format for rent receipt has been specified, but please ensure it mentions the following relevant information:

  • Amount of rent paid
  • Period/month
  • Mode of payment (Cheque/Cash)
  • Your name
  • Landlord’s name
  • Landlord’s signature
  • Residential address
  • Date & Place
  • A revenue stamp of Rs 1 for payment (both cash/cheque) exceeding Rs 5,000

If there are any further doubts that you may have, please reach out to us.

Cheers,

Mihir

Income Tax Returns: An Assurance Of Your Financial Health!

Just the other day, I got a rather usual message from a teenage cousin. It was a troll message on the famous Alia Bhatt ( now you know why its rather usual :P). This is how the message goes (pardon me if you have already heard this one, because it is undoubtedly naïve)

Alia Bhatt: Dad, what is your plan for the weekend?

Mahesh Bhatt: Income tax returns!!

Alia: When did the first one release? 😛

To be honest, I know it is a poor joke. However, the only reason I put it here is to highlight the significance of filing Income Tax Returns [(Even Mahesh Bhatt files it ;)]. Also, the aim of this post is to assert the importance of filing returns when your taxable income is below the prescribed threshold.

Individuals, whose total income without allowing any deductions exceed the basic exemption limits are mandatorily required to file Income Tax Return (ITR).

So, what does total income, without allowing deductions mean?

For this, you first need to know the existing exemption limits, beyond which you are liable to pay tax.

For Assessment year 2015-2016, the basic exemption limits are the following:

  • Individuals below the age of 60, the exemption limit is INR 2,50,000
  • For senior citizens, whose age is between 60 to 80 years, the exemption limit is INR 3,00,000
  • For super senior citizens, whose age is more than 80 years, the exemption limit is INR 5,00,000

Let’s say, Mr. X has an income of INR 2,80,000 and his deductions under section 80C come to INR 50,000 for A.Y. 2015-2016. Hence, taxable income is INR 2,30,000 (INR 2,80,000 – INR 50,000). Now, since this amount is below the thresholds mentioned above, the tax payable is nil.

However, here the striking point is – Mr. X is required to file his returns because his Gross Total Income (total income before allowing deductions) is above the exemption limit of INR 2,50,000 (assuming he is not a senior citizen).

Now, the question is “Why should one file the return when his/her income is below taxable limit?”

Filing income tax return does not necessarily means paying taxes. There are a number of benefits that will ease your life and future plans if you file tax return. ITR acts as a credential of your financial well-being and serves as an evidence of your income. Additionally, it makes you a good law abiding citizen (like how Mr. Modi says).

Continue reading “Income Tax Returns: An Assurance Of Your Financial Health!”