HRA tax exemption: Are both rent receipts and rent agreement a must as income tax proofs?
House Rent Allowance (HRA) option if provided by employer as a part of salary. But one question that usually crops up is whether both rent receipts and rent agreement required as proof to make the claim?
«Rent agreement is important but may not be a sufficient document on its own to claim HRA exemption for tax purposes,» says Akhil Chandna, Partner, Grant Thornton Bharat. «Rent receipts serve as evidence that the employee has actually paid the rent amount mentioned in the rent agreement. Hence, it is advisable for an employee to maintain rent receipts along with the rent agreement; and furnish these before the assessing officer when questioned.»
Mere execution of a rent agreement does not guarantee actual rental payments, explains Tarun Kumar Madaan, Tax Head, Coherent Advisors. «Some individuals may execute rent agreements with family members but not make rental payment transactions. In such cases, the absence of rent receipts and proof of actual payments could lead to the denial of the HRA claim by the assessing officer.»
Can income tax department reject HRA claim if there are no rent receipts?
It is important to keep proof of tax exemption or deduction claimed while filing income tax return (ITR). This is because the income tax department may ask the individual for proof of the claims made in the ITR. The income tax department can ask for documentary proof when the ITR is being processed.
Madaan says, «The assessing officer can reject HRA tax exemption claim if the employee fails to provide supporting documentation, such as rent receipts, despite having a valid rent agreement with the landlord. The assessing officer possesses various powers to gather information and verify the legitimacy of claims in taxpayers'
