To start with, it is important to understand what HRA exemption is. HRA or House Rent Allowance is a component of the salary given by employers to employees to cover their rental expenses. This allowance is tax-deductible under certain conditions specified by the Income Tax Act of India.
One such condition is the submission of rental agreement or rent receipts as proof of rent paid. The rental agreement is a legal document signed by the landlord and tenant that outlines the terms and conditions of the rental transaction. It is mandatory to submit a rental agreement to claim HRA exemption.
However, there are certain exceptions to this rule. If the rent paid by the employee is less than Rs. 1 lakh per annum, then a rental agreement is not mandatory. In such cases, the employee can submit rent receipts as proof of rent paid. Rent receipts should contain details such as the owner’s name, the rented property address, the rent amount, and the duration for which the rent is paid.
In case of the absence of a rental agreement or rent receipts, the employer may ask for a declaration from the employee stating that they are paying rent. This declaration should be supported by some other relevant documents such as the landlord’s PAN card or the property tax receipts. However, this option is not recommended as it may attract scrutiny from the Income Tax department.
It is advisable to maintain a rental agreement or rent receipts even if they are not mandatory. This will help to avoid any issues when it comes to tax filing or any other government-related documentation. Also, in case of any disputes between the landlord and tenant, a rental agreement will serve as proof of the terms and conditions agreed upon.
In conclusion, a rental agreement is mandatory to claim HRA exemption if the rent paid exceeds Rs. 1 lakh per annum. For rents below this amount, rent receipts can be submitted as proof of rent paid. It is always advisable to maintain a rental agreement or rent receipts to avoid any legal or financial implications in the future.