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House Rent Allowance or HRA is given by the employer to the employee to meet the expenses of rent of the accommodation which the employee has taken for his residential purpose. To claim HRA you need to submit PAN number of your house owner, Lease agreement and receipts to your landlord. This article talks about How to claim HRA from the employer. Can you claim HRA by paying rent to parents, wife/spouse, brother, sister, or sister-in-law? What is rental agreement, should you get the rental agreement made, notarized, registered. What is the format of rent receipt, how many rent receipts to submit? Do you need to get revenue stamp?

How to claim HRA from your employer?

House Rent Allowance or HRA is given by the employer to the employee to meet the expenses of rent of the accommodation which the employee has taken for his residential purpose. Our article HRA Exemption,Calculation,Tax and Income Tax Return talks about it in detail. Income Tax Department has standardized the way of declaring HRA by introducing Form 12BB.  Your TDS shall be adjusted so you don’t have to pay tax on HRA and your final tax liability will be calculated accordingly. To claim HRA from your employer you need to provide following details to your employer.

  • Live physically:  You must physically reside in the house mentioned by you while claiming HRA exemption. In case your parents are landlord, make sure that they include the rental income too while filing their returns.
  • PAN number of landlord:
    • If the annual rent paid by you is more than Rs 1,00,000, it is mandatory to obtain PAN of the landlord and report it to the employer to claim HRA exemption.
    • In case PAN is not available, then your landlord must be willing to give you a declaration to this effect.  Along with the declaration, you also need to obtain ‘Form 60’ dully filled by your landlord, in case PAN is not available.
    • If your landlord is not giving you PAN number maximum HRA that you can claim is Rs 8,333.
  • Lease or rental agreement: You must sign up a valid agreement with the landlord. This agreement will have details of the accommodation on lease, period the of lease and rent agreed. In case of a shared accommodation, then along with the above mentioned details in the rent agreement, it should also mention number of tenants co-sharing the flat, ratio in which rent and how utility bills are to be divided. This document may be asked by your employer.
  • Rent receipts: To allow you the exemption on HRA, it is mandatory for the employer to collect proof of rent payment. The employer will give you the exemption on HRA based on these rent receipts.
    • It is mandatory to furnish rent receipts to the employer for claiming HRA exemption for the monthly rent paid more than Rs. 3000 per month.
    • Tax exemption will be calculated only on the basis of rent receipt furnished by employee mentioning the amount paid. Any amount paid over and above the rent receipt shall not be considered for the purpose of exemption by employer.
    • Usually, employers need receipts for 3 months or so.
  • Rent Payments: Make your rent payments preferably via banking channels instead of cash. Using banking channels helps to provide an electronic trail of money for the transactions occurred.
  • TDS:
    • Tenants paying rent to NRI landlords must remember to deduct TDS of 30% before making the payment towards rent.
    • Remember to deduct tax at source (TDS) @ 5%, from the rent paid to your landlord if you are paying rent above Rs. 50,000 per month. Interest at 1% per month is levied in case you forgot to deduct it and 1.5% per month where TDS is deducted but not deposited. It would also attract the penalty of Rs 200 per day for the period of delay
  • Form 16, shows the HRA exemption as shown in the image below. House Rent Allowance (HRA) Exemption would be calculated by your employer and shown in Form 16 if rent receipts, lease agreement were submitted on time.

    Form 16 with HRA

    Form 16 with HRA

  • You would have to show HRA in the calculation of Income from Salary in ITR.

Can I  claim HRA exemption paying rent to my wife/spouse: No! If you pay rent to your spouse, this does not qualify for HRA exemption, because as per income tax department you are supposed to stay with your spouse!

Can I  claim HRA exemption paying rent to my parents/brother/sister-in-law ?: Yes, You can claim exemption on rent paid to others including parents, brother, sister-in-laws etc.

Can I claim Rent for Part of the Year: Yes.You can still claim HRA for the months you were living on rent. For the remaining month tax shall be deducted on your HRA part of you salary.

Can I claim HRA while filing ITR if I cannot submit proof to the employer on time: Yes you can 

While Income Tax Act does not restrict the employee from claiming tax exemption for HRA while filing returns but there will be mismatch in the salary income reported in the Form 26AS by your employer vis-à-vis that reported by you in your return. This may prompt the department to send a communication seeking response regarding the mis-match

If you have not been able to claim HRA exemption from your employer you can claim it directly. This exempt amount has to be reduced from your total taxable salary. The net amount is shown as your ‘income from salary’ in your income tax return. Our article How to Claim Deductions Not Accounted by the Employer explains it in detail. If you claim HRA exemption in your tax return, you must still maintain rent receipts and lease agreement safely in your records, in case the assessing officer asks for them later.

Can I claim HRA if it is not part of my salary? Yes If you are making payments towards rent for any furnished or unfurnished accommodation occupied by you for your own residence, but do not receive HRA from your employer, you can claim deduction under section 80GG.

Rental Agreement

A rental agreement is a legal document that binds the owner of the property and tenant and safeguards the interest of both the parties. The landlord must either be the owner of the property or a person having an attorney from the owner. It is important as it protects the rights of a landlord as well as the tenant. It prevents the unnecessary hikes and eviction without prior notice of minimum one month. Rent Agreement can be done online through legaldesk.com,edrafter.in, nobroker.in.

The standard rent agreement is made only for eleven months. Because as per the Registration Act, 1908, clause (d) of sub-section (1), registration of the property that is on lease for one year or more than a year is compulsory Renewable/extendable agreements for three to five years can also be made and registered. However, the stamp duty and registration charges for longer duration may differ.

What should a Rental agreement contain?

A rent agreement includes the terms and conditions under which the property is given on rent. It specifies basically the following conditions.  However, if the parties involved have more clauses, they are free to add clauses of their choice as long as both parties consent to it. As soon as you draft your rental agreement, make sure that it is reviewed by both parties.

  • Name, address, father’s/husband’s name of both the tenant and the landlord should be clearly mentioned.
  • Rent value and the tenure for which the agreement is made. The tenure of a rent agreement is usually 11 months unless otherwise specified in the contract. If it’s for more than a year, it’s mandatory for the owner to get the document registered
  • the security amount that is deposited with the landlord by the tenant.
  • the day before which the rent is expected to be paid. If the tenant fails to pay the rent before the predetermined period, the penal charges that he would be liable to pay should also be defined in the agreement.
  • The rent agreement could also mention the facilities, such as parking space or the usage of society’s gym, included with the property.
  • There could also be additional monthly charges, such as the society maintenance charge and club fee. It’s best if the additional charges for using such facilities are clearly spelt out, along with the person who is supposed to bear them.
  • Rent revision terms (if going for long duration)
  • Notice period, Lease Termination & Extension
  • In case the flat is furnished, a list of fittings and fixtures should be made and the penalty for damage decided in advance. The landlord should also check plumbing, electrical, sanitary fittings, etc, and mention their condition in the agreement. Details of the condition of walls, ceilings, and rooftop should also be mentioned so that there is no dispute over damage to the house if there is any.
  • The purpose of tenancy should be clearly written- whether it will be used for the commercial or residential purpose.

Sample Terms and conditions are given below. You can download sample rental agreement (doc) from here

Sample rental agreement conditions

Excerpt of Sample rental agreement conditions

Rental agreement and Notary

Under 11 months, both registration and notarization can be overlooked.  Do not confuse registration with notarization as both are two different actions.

Notarization generally refers to verification and giving a seal of authenticity to a document. This is performed by a Notary who is appointed under the Notaries Act. Registration on the other hand in registering the document with a local Sub-Registrar office. The procedures for both are governed by different Acts and can therefore, be considered as two entirely different procedures.

In India, it is not mandatory to notarize a rental agreement. As long as it is printed on Stamp paper and is signed by both parties and by two witnesses, it is considered binding. However, if you wish to notarize it, you may do so. The job of the notary is to verify everything in the document and attest the document once everything is found to be genuine about the document as well as the deponent. A Notary public is someone appointed by the State/ Central Govt. and his/her primary duty is to deter frauds and forgeries by overseeing/witnessing document signing and authenticity verification. Apart from this Notary Public also performs duties such as oath administration, affidavit signing, record maintenance and performing marriage ceremonies.

However, if you still wish to get your deed notarized, here’s the procedure for it. It is fairly simple, so it should take you very little time.

  1. Visit a court/ Sub-Registrar office
  2. Approach a Notary Public
  3. Present your documents and explain the need to them
  4. Get the deed notarized

Rental agreement and Stamp Paper

As per the Law when one does some transactions such as buying and selling real estate, business agreements, leasing property, one needs to make pay Stamp Duty to Central/State Govt.  The duty to be paid varies from state to state and if a state does not have its own Stamp Act, it will be overseen by the Indian Stamp Act. Stamp papers are proof that the required Stamp Duty has been paid to the Govt., much like receipts.

The Stamp Paper value (Stamp Duty) depends upon State to State. For example in Delhi, the Stamp Paper amount provided by Government for Agreement is Rs. 50 where as in Bangalore Rs. 20. The Stamp Paper value of Rent Agreement is not decided on the amount of rent fixed between parties but is decided as per the stamp duty fixed by the State Government. The range of Stamp Duty for rental agreement is mostly Rs 20, rs 50 and rs 100. You verify with your employer if there is some limit on stamp paper.

As of now, Indian Govt. permits payment of Stamp Duty in more than one ways. They are:

  • Through e-Stamping
  • Through papers bearing impressed Stamps which would be the non-judicial Stamp paper
  • Using a Franking machine
  • Adhesive stamps, paying at the registrar office etc.

For using e-Stamp paper for your rental agreements, you need to do is verify whether your state facilitates this, by going on to the website of SHCIL and checking if your state is included in the list. Some of the states that allow e-Stamping include Assam, Gujarat, Himachal Pradesh, Karnataka, Maharashtra, Delhi-NCR, Tamil Nadu, Uttarakhand and Uttar Pradesh.

  • To get a rental agreement printed on e-Stamp paper, you will first have to purchase an e-Stamp paper from allotted centres in your city as you cannot purchase them online from SHCIL or their distributors!.
  • Write/print your rental deed on e-Stamp paper,
  • Tenant and the landlord, must place their signatures at designated places along with the signatures of two witnesses.
Rental Agreement for claiming HRA while living with parents Rental Agreement on e Stamp Paper for claiming HRA

Rental Agreement on e Stamp Paper for claiming HRA

Rent Receipts

There is no standard format of rent receipts. Rent receipt should contain the landlord’s name, rent amount, address of rented place, landlord’s  PAN details and the duration for whicj rent is received( monthly or quarterly). You don’t need the revenue stamp if you are payment of rent is made via cheque or online.  Revenue stamp is only needed if payment made in cash per receipt is more than Rs 5,000. An Assessing Officer is free to make such inquiry for the purpose of satisfying himself that the employee has incurred actual expenditure on payment of rent

You can give a monthly receipt for a month in every quarter (Apr-June, Jul to Sep, Oct-Dec, Jan to Mar) or give a quarterly receipt. Please clarify with your employer about frequency/format of receipt.

Note: An employee can be dismissed from service for producing Fake Rent Receipts.

Rent receipt to claim HRA

Rent receipt for claiming HRA

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Hope this article helped you in understanding how to claim HRA from your employer, rental agreement formar and rent receipt.

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