May you demand HRA in your native place for the rent paid?
In this post, we discuss how you can assert (House Rent Allowance) HRA if you have travelled since the COVID-19 pandemic to your native location.
A significant number of workers in India are operating from home due to the COVID-19 pandemic. In June 2020, several employers themselves were granted permission for their workers to operate from home until December 2020, looking at the confusion involved. While India launched its coronavirus vaccination programme in February 2021, most large companies have announced plans to allow a large part of their employees to operate remotely until 2022.
As a result, more workers who have returned to their native areas will prefer to remain in leased places. A large number of such workers are earning House Rent Allowance (HRA) and are concerned about whether they will be able to demand HRA away from their place of employment for the rent paid in their native place.
The HR divisions of some of the organisations have already told their workers that the HRA’s argument is not to be entertained in respect of the rent paid in a position other than their place of work. In this document, we discuss whether the assertion of the HR department of those organisations is right and how you can claim HRA if your organisation does not allow your claim.
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What are the conditions for claiming HRA (House Rent Allowance)?
First of all, let us grasp the legislative requirements for employee HRA (House Rent Allowance) distribution.
Section 10(13A) of the Income Tax Act provides that, if certain requirements are met, a salaried individual can demand tax benefits in respect of the HRA obtained from his employer.
As long as the residential accommodation is occupied by the employee and the other requirements are met, the provision does not have any clause as to the location for which the employee will demand the HRA exemption.
Furthermore, the statute states that the value of the HRA will only be sought if the rent has already been paid by the employee and the employee does not own the residential accommodation on which the rent is paid.
So, as long as you fulfil all of the requirements, you are entitled to claim the advantage of HRA.
Please note that if the house is jointly shared by you, you would not be entitled to invoke the HRA advantage. So, whether you have a jointly held residential home with your parents, siblings or partner, you are not entitled to this advantage.
Similarly, once you have entered into a tax preparation arrangement, you would not be entitled to demand HRA to lend out your own property to your employer, which, in exchange, has given you rent.
In addition, there is no limit to the provision that rent should be charged to the same landlord during the year. The worker can adjust his residential accommodation as many times as he wants to and claim HRA benefit for rent paid to various landlords over the year, providing that the HRA claim has not been made more than once for the same duration.
With the aid of an equivalent case, this can be further explained and understood. It is still conceivable that the worker and the boss may be physically located at separate positions within the country or also in different countries in this environment of the internet and supporting technologies.
Suppose a software engineer is employed by a corporation based in the US with a part of his pay being HRA. The Indian law will also encourage the Indian employee to demand the HRA benefit even during normal periods and despite the employer and employee being based in two separate countries, as long as he complies with the simple requirements of paying the rent for the residential accommodation rented by him and not owned by him.
It becomes clear from the above discussion of the legal provisions that the statements of the HR department of such firms are completely wrong and do not agree with the legal provisions.
How much HRA are you entitled to claim?
The limitations by which you can assert HRA benefits are prescribed in Rule 2A of Income Tax Rules 1962. So the smallest of the following sums is the limit:
– The sum of HRA that was currently collected.
– Over 10% of your wage, the sum of rent paid.
– If the housing is in the four metro cities, 50 per cent of your income, or else, 40 per cent of your salary.
The compensation would only include the regular salary and the dearness benefit for the purpose of the HRA claim. The estimation of the excluded allowance must be provided for the time of occupancy of the accommodation and the HRA benefit cannot be made for the whole year on an aggregate basis.
So, essentially, to arrive at the exemption component of HRA for the respective months, the measurement needs to be performed on a monthly basis. It is obvious from the aforementioned rules that you are not eligible to claim an HRA exception if the rent charged does not exceed 10% of the wage. Furthermore, for the time for which you have not paid any rent, you would not be entitled to receive the HRA benefit.
What records are needed for HRA claims?
Employers usually rely on sending, in addition to the rent receipts, a properly stamped and enforced rent agreement to make HRA claims. However, it might not be possible for a number of workers to conduct a signed written lease arrangement due to the Coronavirus pandemic.
It should be remembered that the statute does not mandate that, in order to claim HRA compensation, a legitimate leave and licence arrangement should be in effect.
Before awarding you the HRA benefit, the statute puts an obligation on the employer to obtain adequate evidence. So, even though you produce copies of the rent receipts, backed by a bank statement indicating the payment of the rent, the employer should regard it as satisfactory compliance.
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It just makes the deal seem more real when signing an arrangement.
You are not allowed by the legislation to pay the rent through a banking channel. As long as the agreement is legitimate and the recipient has included the rental income in his income tax returns, the rent can also be paid in cash.
Nevertheless, to prevent any problems, it is advisable to pay the rent through banking channels. The statute also does not mandate you to pay rent on a monthly basis, however, to avoid raising doubt in the eyes of the tax authorities, it is advisable to do so.
And after filing rent receipts, what if the corporation deducts tax?
There could be a case where either the HR department does not thoroughly grasp the legal conditions for claiming the benefits of the HRA, or is stubborn and extra cautious and disallows the HRA claim and deducts tax on the entire amount of HRA paid.
Even in a case like that, all is not lost. When filing your income tax return, you can also make an application for the HRA deduction and claim a credit for the extra tax withheld from your employer.
Hold any documentary records relating to the paying of the rent in such a case, such as the delivery of the rent, the bank balance and all other documentary evidence in respect of your stay at a given rental spot, such as the messenger or post obtained at the rental address.
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