How to Minimize Tax Liability with House Rent Allowance

How to Minimize Tax Liability with House Rent Allowance

With the rise in prices at every nook and corner, it has become an obligation to spend less and save more wherever possible, if one wishes to survive in today’s world. For salaried employees who have left their hometowns and live in rented apartments in the cities, the house rent allowance is a good tool to Minimize Tax Liability with House Rent Allowance

It not only saves some cash, but is also tax exempted, which means you do not have to pay tax for the amount of rent you pay to your landlord, isn’t that great? To collect your house rent allowance all you need to do is provide your tenant agreement and your rent receipts, and claim your rightful allowance. However, there has been some change in recent years.

Earlier Scenario- No Landlord’s PAN upto HRA of Rs 15000 p.m

Initially, you were expected to provide your landlord’s Permanent Account Number (PAN) only if your monthly rent exceeded Rs.15,000 or your annual rent crossed 1.8 Lakh. Now, you are expected to provide your landlord’s PAN even if your monthly rent exceeds Rs.8333, or your annual rent crosses Rs.1 Lakh. It’s a bit of a hassle in procuring the tax exemption via the house rent allowance (HRA) option, but nevertheless really very important if you intend to save your salary which will benefit you in the long run.

Present Scenario- Landlord PAN a must if Annual Rent exceeds Rs 1 lakh

The central Board of Direct Taxes (CBDT) issued a new circular on 10^th October, 2013, which states that if a person’s annual rent exceeds Rs.1 lakh per annum, the tenant is expected to provide the landlord’s PAN while claiming his/her HRA tax exemption to his employer. Apart from the landlord’s PAN you were also expected to show house rent receipts.

However, there has been a slight modification, for administrative ease, the employees who receive house rent allowance up to Rs.3000 are not obliged to show house rent receipts. This exemption is solely for the tax exemption at the source, and if the assessing officer wishes to see the rent receipts for his satisfaction, you will have to provide them.

Calculating your HRA

For salaried employees with rent above Rs.3000 per month, it’s mandatory to provide their rent receipts while claiming tax exemption. The actual HRA exemption one can avail is a comparison between two figures, whichever amount is the minimum:

1. Actual amount of HRA received
2. 50% of the individual’s salary (Metro citizens) 40% of the individual’s salary (Non-metro citizens)

No PAN details scenario- What if Landlord does not have PAN?

• In special circumstances where the landlord does not possess a PAN number, or cannot provide his/her PAN details, you can request them to provide a declaration of the same.
• This declaration is sufficient to claim your HRA tax exemption when you cannot provide your landlord’s PAN details.
• It is also advisable that all these documents are collected before you rent a place so that it saves you the last minute hassle and running behind the landlord to get it done. Also note that, if you own the house, you cannot lawfully claim house rent allowance as no expenditure has been made by the employee in regards to the rent of the house.

Also Read: How to Reduce Your Income Tax Liability by Investing in Family Members name