House Rent Allowance Tactics: Received HRA Income Tax Notice? Know Precautions & Response

HRA deduction in India refers to the amount of House Rent Allowance (HRA) that an employee can claim as a deduction from their taxable income. This deduction is available under Section 10(13A) of the Income Tax Act, 1961. For many people, the cost of rent is their biggest expense. Claiming HRA deduction can help them to meet their financial obligations, such as paying rent, EMIs, and other bills.

To claim HRA deduction, the employee must be living in a rented house.

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Benefits of HRA deduction:

HRA deduction can help salaried individuals to save a significant amount of tax on their income. This is especially beneficial for individuals who live in rented accommodation in metro cities, where the cost of rent is high.

HRA deduction can also help individuals to improve their credit score. This is because lenders view HRA deduction as a sign of financial stability.

HRA deduction is a valuable tax exemption that can help salaried individuals to save money on their taxes. If you are living in a rented house, experts suggest you must claim HRA deduction.

However, you can receive a notice from the Income Tax Department (ITD) for your HRA claim. This can happen for a number of reasons, such as:

• You have claimed a higher HRA deduction than what you are eligible for.
• You have not submitted all of the required documents to support your HRA claim.
• The ITD has reason to believe that your HRA claim is fraudulent.

In some cases, the ITD may also conduct an inquiry into your HRA claim. If the ITD finds that you have made a false HRA claim, you may be liable to pay additional taxes, interest, and penalties.

Amit Gupta, MD at SAG Infotech, said that if you receive an income tax notice related to your HRA claim, there are several crucial steps to follow.

Adhering to these steps can help you navigate an income tax notice related to your HRA claim efficiently and minimise any potential issues with tax authorities.

First and foremost, Gupta suggested it is important to ensure you have a valid agreement from your landlord, as this serves as essential documentation. To establish a transparent payment process, make rent payments online or via cheque, which provides a clear trail of transactions.

“If your annual rent payment exceeds Rs 1 lakh, it’s important to obtain the PAN details of your landlord and ensure they are correctly mentioned on the rent receipt,” he added.

Keeping records of utility bills that you have paid can also substantiate your claim. In cases where your landlord does not possess a PAN, you should obtain a declaration along with a duly filled Form 60 to maintain compliance, Gupta highlighted.

Furthermore, if you have obtained the rent receipt from a close relative, it’s essential that both parties accurately report the rental details in their respective Income Tax Returns (ITRs) and ensure that the information on the rent receipt matches the details mentioned in the ITR.

Here are some tips to avoid receiving a notice from the ITD for your HRA claim:

• Make sure that you are eligible to claim HRA deduction.
• Do not claim a higher HRA deduction than what you are eligible for.
• Submit all of the required documents to support your HRA claim.
• Keep your rent receipts and other supporting documents after filing your income tax return.
• If you receive a notice from the ITD, respond to it within the specified time frame.

If you have any doubts about your HRA claim, you should consult with a tax professional.