For filing HRA (House Rent Allowance) claims return, providing PAN card information is made mandatory by the government of India to the employees. As Income Tax Department has laid down a circular via CBDT (Central Board of Direct Taxes) that where the annual rent paid is more than ₹ 1,00,000 per annum, it is mandatory to report the PAN of landlord to the authority to claim exemption. Hence, it is of utmost priority to possess PAN card for HRA exemption for all the income-earning individuals.
About HRA (House Rent Allowance)
House Rent Allowance commonly called as HRA is a part of the employee’s salary received by the employer for rented accommodation. HRA exemption can only be made by the employees if they reside in a rented apartment. Subject to certain conditions, a part of HRA is exempted under section 10(13A) of Income Tax Act, 1961. It must be kept in mind that HRA received by an employer is fully taxable, if the employee is living in his house or if he does not pay any rent. As HRA differs from city to city, the percentage of allowance differs as well. An employee working in a privately owned organization is allowed to have HRA of 50% of the basic salary in metro cities and 40% of the basic salary in non-metro cities. For employees working in public sector organizations get an exemption based on minimum or maximum HRA in different cities as per the recommendations of 7th Pay Commission.
Who can Avail House Rent Allowance?
Tax benefit is only privileged to the salaried employees who are provided with the HRA as a part of the salary structure. Income-earning individual should be residing in a rented accommodation to avail the benefit. No individual will be allowed to get exemption from the allowance, if he/she resides in his/her house, it is fully taxable. Also, self-employed professionals cannot avail the deduction.
Enforcement of New HRA Law
According to Income Tax Act, 1961 all employees who pay more than ₹1,00,000 rent per annum are required to submit PAN details to claim deductions. Employee is required to submit PAN Card Declaration from landlord along with the tax exemption claim form. The PAN declaration form should be printed in A4 size and should include below details with the form:
- An undertaking from the landlord stating his/her name.
- Address of the property
- Amount paid to the landlord as rent
- PAN card number of Landlord
- Landlord’s name and address
- Landlord’s signature
How to Claim HRA When Living with Parents?
As rental income is taxable for the parents, individual needs to consider the income tax slab of his/her parents in order to come to a solution. Also, any discrepancy may lead to heavy penalty or income tax notice from the Income Tax Department of India. Below mentioned points should be considered to claim HRA when living with parents.
- Individual must live in a rented accommodation
- Parents of individual must be the owner of house. For saving tax individual need to pay rent to the owner of property. If in case, the property is jointly held, individual has to pay rent to both the parents.
- A rent agreement should be made. Documentation must be made clear.
- Get the rent receipts duly signed by your parents to avoid any discrepancy while file tax returns.
- Parents should show their rent received as rental income while filing tax returns as rental income are taxable.
How is HRA Calculated?
Below mentioned are the 3 conditions on which HRA is calculated. HRA is calculated for the lowest of the 3 conditions mentioned for deduction.
- The HRA amount received by the employer
- Actual amount paid on rent minus 10% of the basic salary
- 50% HRA if the employee resides in metro cities and 40% for non-metro cities.
From the above mentioned conditions, which of the following gets least will be exempted from the income tax for the calculation of HRA amount.
How to Calculate HRA Exemption with Examples
Let’s discuss the HRA exemption calculation following a suitable example.
For instance: Rakesh lives in Delhi and earns a basic salary of Rs. 50,000 per month. Company provides HRA component of Rs 25,000 but the actual rent paid by Rakesh is Rs 12,000. Calculate the HRA Exemption?
To solve the problem, we have to look at the factors affecting HRA calculation:
Actual HRA received- (Rs. 50,000*12) = Rs. 6,00,000
Actual Rent paid- (Rs. 12,000*12) – 10% of salary [(Rs. 50,000*12)*10%]= Rs. 84,000
50% of the basic salary [(Rs. 50,000*12)*50%]= Rs. 25,000
From the above calculation, it is found that Rs. 84,000 is the least among the eligible criterion, so Rs. 84,000 is the amount to exempt for Rakesh.
FAQs on PAN Card for HRA Exemption
Q. Can anyone claim HRA?
A. No, only salaried individuals can claim for HRA.
Q. Can I claim HRA if I live in my own house?
A. No, you can’t claim HRA if you live in your own house property.
Q. Can I claim HRA and deduction on home loan interests?
A. Yes, you can claim both HRA and Home loan interest.
Q. When do I have to provide the PAN information of my landlord?
A. At the time of filing tax return and claiming HRA exemption, it is mandatory to report the PAN of landlord to the I-T Department. For salaried individuals, who pay rent in excess of Rs. 1,00,000 are provided to obtain landlord’s PAN.
Q. What are the documents required for HRA exemption?
A. Documents required for HRA Exemption includes- Rent Agreement for the current financial year, duly stamped rent receipt and PAN card if the rent exceeds RS. 1,00,000 P.A
Q. Does HRA come under 80C?
A. No, HRA does not come under Section 80C.
Q. To claim HRA, whom do I pay rent to?
A. HRA benefits can be claimed if you pay rent to your landlord or when living with parents under rental agreement.
Q. My landlord does not have PAN. How do I claim tax deduction on HRA?
A. If landlord does not possess PAN, still individual can claim tax deduction on HRA. Individuals have the option to claim it because there is no requirement to furnish the PAN of landlord while filing tax returns. Furthermore, in case of any discrepancy from the authority or employer, individual need to keep the record of rent receipts, rent agreement and others.