Rent receipts and its role in claiming HRA tax benefit


To claim HRA benefits, the submission of rent receipts is mandatory for salaried employees. We explain how to generate a legally valid rent receipt for this purpose

If you are living on rent and house rent allowance (HRA) is a part of your salary package, you will have to submit rent receipts as proof of the expense, to claim the tax deductions allowed to tenants under the Income Tax (IT) law in India. In this article, discussed in detail are the various components of rent receipts and the process to generate it online.

 

What are rent receipts and why do you need them?

You will have to provide proof of the amount paid your landlord under the rental arrangement, to your employer to claim tax benefits. This is where rent receipts come into the picture. Rents receipts are the documentary proof that you have spent a certain amount from your salary, to bear the expense of living in a rental accommodation. Your employer would demand this legal proof every financial year, to calculate your tax liability and claim deductions on your behalf, if HRA is part of your salary package. Your employer will ask you to submit the rent receipts before the end of the financial year. Even if you are paying your rent through credit card or other online money transfer channels, you need to procure rent receipts from your landlord and submit the same to your employer, to claim HRA deductions.

The tenant will have to share the rent receipts with his employer to claim HRA exemption, if he pays a monthly rent in the excess of Rs 3,000. In case of lower monthly rent, they need not submit the receipts. It is also pertinent to mention here that you do not have to submit the rent agreement, for claiming the HRA benefit, since the tax law does not state that specifically. However, the tenancy will not be valid, until a rent agreement has been signed and executed between the landlord and the tenant.

See also: Everything you need to know about rent agreements

 

What is HRA?

The HRA is the tax concession given to employees for what they pay towards accommodation, every year. For the purpose of HRA claim, your salary will include only the basic salary and dearness allowance (DA) component.

 

Extent of HRA claim

Under Rule 2A of IT Act 1962, the HRA can be claimed as the minimum of HRA received from the employer or 50% of the salary for employees living in metros (40% elsewhere) or actual rent paid minus 10% of the salary.

 

HRA calculation example

Suppose your basic salary is Rs 30,000 per month and you pay a rent of Rs 10,000 per month in Mumbai. Your employer offers you an HRA of Rs 15,000 per month. The tax benefit will be:

* HRA = Rs 15,000

* Rent paid less 10% of basic salary = Rs 10,000 – 3,000 = Rs 7,000

* 50% of basic = Rs 15,000

Thus, the HRA will be Rs 7,000 and the remaining Rs 8,000 will be taxable.

See also: Income tax benefits on house rent

 

Who can claim HRA?

You can claim deductions if you live in a rented accommodation and HRA is part of your salary. Those living in rented accommodations can avail of HRA exemptions to save tax under Section 10 (13A) of the IT Act, if they are salaried individuals. Self-employed professionals are offered HRA tax deduction under Section 80GG of the law.

 

Components of a valid rent receipt

Rents receipts must include these information to be valid:

  • Name of the tenant
  • Name of the landlord
  • Address of the property
  • Rent amount
  • Rent period
  • Medium of rent payment (cash, cheque, online payment)
  • Signature of the landlord
  • Signature of the tenant
  • Revenue stamp, if the cash payment is more than Rs 5,000 per receipt.
  • PAN details of the landlord, if your annual rent payment exceeds Rs 1 lakh or Rs 8,300 monthly.

 

Rent receipt template

Here is the basic template of rent receipt.

Rent receipt

 

Steps to generate free rent receipt

Using online rent receipt generators on various platforms, tenants can generate online receipts for free by following these simple steps:

Step 1: Go to the desired platform. Click on the rent receipt generator tab. The first page that appears will ask you to provide the tenant’s name and the rent amount. Hit the ‘continue’ button to proceed.

Step 2: Now provide the landlord’s name, the full address of the rented property and the landlord’s PAN details (optional). Hit the ‘continue’ button to proceed.

Step 3: Fill in the period for which the receipts have to be generated. Hit the ‘continue’ button to proceed.

Step 4: The next page will give you a preview of the receipt. After ensuring that every detail in the preview is correct, you could hit the ‘print’ button to get copies of the rent receipts on the final screen. You can also download the PDF of the rent receipt to your device.

 

House rent receipt and HRA benefits: Key points to consider

Ownership: You should not be the owner, either sole or co-owner, of the property for which you are paying rent and claiming HRA. This is why those living in the homes of their parents are allowed to claim HRA benefits, as long as they are paying a rent to their parents and the same is reflected in their salary outgoing.

Period covered: To calculate the extent of the exemption that you can claim, your salary will only be considered for the period for which you have paid the rent. No HRA tax benefit can be claimed, if the rent paid does not exceed 10% of the salary for the relevant period.

Rent receipt period: Submitting rent receipts for each month is not mandatory. It could be done on a quarterly, half-yearly or an annual basis. However, the receipts for all the months for which you are claiming HRA must be submitted with the employer.

Rent payment mode: You can pay the rent through any medium, including cash payments, since there are no specifications on rent payments so far. You only have to collect the rent receipt from your landlord and submit it to the employer in the soft or the document form, depending on what policy they follow.

Affixation of revenue stamp on rent receipt: The tenant will have to affix a revenue stamp on each rent receipt, if he has paid more than Rs 5,000 per receipt. This requirement does not arise, if the payment has been made through a cheque.

PAN details of the landlord: Apart from his PAN details, you may also have to provide a copy of your landlord’s PAN card while filing your returns. This becomes mandatory, only when the annual rent amount is over Rs 1 lakh and exceeds Rs 8,300 monthly. In case you fail to do so, you will not be able to claim HRA and tax will be deducted accordingly.

Shared accommodation: In case you are sharing the property with another tenant who is also bearing the rental expenses, the HRA deduction for you would be provided only to the extent of your share in the rent and not for the entire amount.

Soft copies or hard proof: While soft copies of the rent receipts are also accepted by some employers, others might insist on actual receipts.

Misinformation: Any wrong information in the rent receipt would amount to it becoming null and void.

Direct HRA claim: You can claim HRA exemption directly from the IT department at the time of filing the IT returns, in case your employer fails to do so.

See also: All you need to know about the Draft Model Tenancy Act 2019

 

FAQs

What proof do I have to provide to claim HRA?

Rent receipts, which mention details including tenant/landlord details, address of the property, rent amount, payment schedule, signatures of the parties and the medium of transaction, act as the proof to claim HRA.

Do I have to give rent receipts for every month to claim HRA from my employer?

Rent receipts could be provided on a quarterly, half-yearly or an annual basis.

What if my landlord does not have a PAN card?

In case the landlord does not have a PAN card and charges over Rs 1 lakh as annual rent, he will have to provide a written declaration, along with the duly filled Form 60. The tenant can then submit these documents to his employer, to claim HRA deductions.

 

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