An employee who receives HRA can claim an exemption in respect of rental payments under section 10(13A) read with rule 2A of the Income Tax Rules. For claiming an HRA exemption, the individual must be residing in a rented premises and actually pay rent for the house .
In case one stays in a house owned by him/her, exemption shall not be available and the entire amount of HRA shall be taxable.
The HRA exemption shall be restricted to least of the following:
1) Actual HRA received from the employer;
2) Excess of house rent paid over 10% of the salary; and
3) 50% of the salary if one lives in a metro city (i.e. Mumbai, Delhi, Kolkata and Chennai), or 40% of the salary if one lives in non-metro cities.
The term ‘salary’ includes dearness allowance, if terms of employment so provide, but excludes all other allowances and perquisites.
Further, if the Tax Return of an individual is selected for scrutiny or audit by a tax officer, the tax officer may insist for additional documents such as Rent Agreement,copy of bank account statements, depending on the quantum of HRA exemption. The officer can also ask for rent receipts irrespective of the amount of rent. Though there are no prescribed documents under the domestic tax law, as a matter of prudence, the employee has to keep, as the employer may also request it, the notarized registered rent agreement with the landlord, rent receipts, copy of the bank statements, and other such documents to substantiate the payment of rent.
Further, if rent paid exceeds Rs.1 lakh per annum, it is mandatory for the employee to report Permanent Account Number (PAN) of the landlord to the employer.
Query : if any one have paid rent to two landlords of amounts below Rs. 1 lakh each (for eg. Rs.1.8 lakh in total). Do I still need to submit the PAN details of both my landlords to my employer for claiming the HRA exemption?
Reply : As per the income tax provisions, Permanent Account Number (PAN) of the landlord is required to be furnished if the aggregate of the rent paid during the previous year exceeds R1 lakh. The plain reading of Circular No. 20/2015 and Form 12BB suggest that the limit of R1 lakh applies per landlord. As such, since in your case the total rent paid per landlord does not exceed the limit of R1 lakh, PAN details of any of the landlords may not be required to be furnished in order to claim the HRA exemption.