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Due to the first and second wave of the COVID-19 pandemic, a large number of employees in India are working from home and are likely to do so for a long time. Looking at the uncertainty involved (there are predictions of a third wave, too), many employers had, in June 2020, given permission for their employees to work from home till December 2020. Even though India launched its vaccination programme against the Coronavirus in February 2021, a majority of large corporates have announced their plans to allow remote working till 2021, for a large part of their workforce. Consequently, many employees staying in rented places, who moved to their native places will continue to stay there. A significant number of such employees are in receipt of House Rent Allowance (HRA) and are apprehensive about whether they will be able to claim HRA for the rent paid at their native place, away from their place of employment.
The HR departments of some of the companies have already communicated to their employees that the claim of HRA, with respect to the rent paid in a place other than the place of their employment, shall not be entertained. In this article, we examine whether the contention of the HR department of such companies is correct and how you can claim HRA, in case your company does not allow your claim.
What are the conditions for claiming HRA?
Let us first understand the legal provisions for allowance of HRA to employees.
*Section 10(13A) of the Income Tax Act provides that a salaried person can claim tax benefits with respect to HRA received from his employer, on fulfilment of certain conditions.
*The section does not contain any condition as to the place for which the employee can claim the HRA exemption, as long as the residential accommodation is occupied by the employee and the other conditions are satisfied.
*The law further provides that the benefit of HRA can only be claimed, if the rent has actually been paid by the employee and the residential accommodation, for which the rent is paid, is not owned by the employee.
So, you are entitled to claim the benefit of HRA, as long as you satisfy both the conditions.
Please note that you will not be able to claim the HRA benefit, in case the house is jointly owned by you. So if you have a residential house that you own jointly, with your parents, siblings or spouse, you are not entitled for this benefit.
Likewise, you will not be able to claim HRA, in case you have entered into an agreement for tax planning, to lease out your own property to your employer, who, in turn, has given you rent.
Moreover, the law does not have any restriction that the rent should be paid to the same landlord throughout the year. The employee may change his residential accommodation as many times as he needs to and claim HRA benefit for rent paid to different landlords during the year, provided the claim for HRA has not been made for the same period more than once.
This can be better explained and understood with the help of an analogous situation. In this world of internet and enabling technology, it is always possible that the employee and the employer may be geographically situated at different places within the country or even in different countries. Suppose a software engineer is hired by a US-based company with HRA being a component of his salary. So, even during normal times and in spite of the employer and employee being situated in two different countries, the Indian law will still allow the Indian employee to claim the HRA benefit, as long as he complies with the basic conditions of having paid the rent for the residential accommodation occupied by him and not owned by him.
From the above discussion of the legal provisions, it becomes clear that the contention of the HR department of such companies is absolutely wrong and is not in conformity with the legal provisions.
How much HRA can you claim?
Rule 2A of Income Tax Rules 1962 prescribes the limits up to which you can claim HRA benefits. So the limit is the least of the following amounts:
i) Amount of HRA actually received.
ii) Amount of rent paid over 10% of your salary.
iii) 50% of your salary in case the accommodation is in the four metro cities, or else, 40% of your salary.
For the purpose of HRA claim, salary will include the basic salary and the dearness allowance only. The computation of exempt allowance has to be made for the period for which the accommodation is occupied and the HRA benefit cannot be made on an overall basis for the whole year. So, effectively, the calculation has to be done on a monthly basis, to arrive at the exemption portion of HRA for the respective months. From the above rules it becomes clear that you are not entitled to claim HRA exemption, if the rent paid does not exceed 10% of the salary. Moreover, you will not be entitled to claim the HRA benefit for the period for which you have not paid any rent.
What documents are needed for HRA claim?
*Generally, the employers insist on submission of a duly stamped and executed rent agreement, in addition to the rent receipts, for allowing HRA claims. However, due to the Coronavirus pandemic, it may not be possible for a majority of the employees to execute a stamped written rent agreement.
*It may be noted that the law does not require that there should be a valid leave and licence agreement in place, for claiming the HRA benefits.
*The law casts a duty on the employer to obtain sufficient proof, before he grants you the benefit of HRA. So, even if you produce copies of the rent receipts, supported by a bank statement evidencing payment of rent, it should be treated as sufficient compliance by the employer.
*Submitting an agreement only makes your transaction look more genuine.
*The law does not require you to pay the rent through a banking channel. The rent can even be paid by cash, as long as the transaction is genuine and the recipient has included the rental income in his income tax returns.
*Nevertheless, it is advisable to pay the rent through banking channels, to avoid any complication. The law also does not require you to pay rent on a monthly basis but it is advisable to do so, to avoid creating suspicion in the minds of the tax authorities.
What if the company deducts tax even after submitting rent receipts?
There may be a situation where the HR department either does not fully understand the legal requirements for claiming the HRA benefits, or is adamant and being extra careful and disallows your claim of HRA and deducts tax on the full amount of HRA paid. Even in such a situation, all is not lost. You can still make a claim for the exemption of HRA, while filing your income tax return and claim a refund for the excess tax deducted by your employer. In such a situation, preserve all the documentary evidence pertaining to payment of the rent, such as the rent receipt, bank statement and any other documentary evidence in support of you having stayed in a particular place on rent, like courier or post received on the rental address.
(The author is a tax and investment expert, with 35 years’ experience)
Can I claim HRA for rent paid in a location other than my place of employment?
The Income Tax Act section pertaining to HRA does not specify any condition for the place for which the employee can claim the exemption.
Can rent be paid in cash to claim HRA?
Yes, you can pay the rent in cash and claim HRA, however there are certain conditions to be fulfilled.
How much HRA can I claim without receipts?
According to the income tax laws, it is mandatory for the tenant to declare the landlord's PAN card details, if the annual rent paid is more than Rs 1 lakh or Rs 8,333 per month.
Can HRA exemption be claimed for two houses?
Yes, you can claim HRA exemptions on two houses, subject to the fulfilment of certain conditions.