Income tax returns: Fraudulent HRA claims while filing ITR can invite hefty penalty — all you need to know

House Rent Allowance (HRA) is one item in your salary slip that you can use to lower your tax liability. Fraudulent HRA claims or underreporting your income can lead to 50 per cent of the tax levied or a penalty of up to three times the amount intended to evade. 

Housing allowance is tax deductible under Income Tax Return (ITR) filing as per part B of Form 16. Under Section 10 (13 A), one can only claim this housing allowance if they are living in a rented property.

The housing allowance amount is given in the tax projection statement at the beginning of a financial year. Citizens such as non-salaried individuals who are ineligible to receive HRA can claim a deduction for their rental expenses under Section 80GG. This exemption is ineligible for any employee who resides in a property owned by themselves, their spouse, minor child, or Hindu Undivided Family (of which they have to be a part).

HRA is an efficient tax-saving tool used to reduce an individual's tax liability. It must be done in the correct legal way.

How is HRA exemption calculated when filing ITR?

Exemption on HRA will be calculated based on the least value of the following three items.

1. Actual HRA amount received under your salary slip.
2. 50 per cent of your salary (for those living in metro cities) or 40 per cent of your salary (for non-metro cities)
3. Rent paid minus 10 per cent of your salary, including dearness allowance.
   
   If a taxpayer is claiming an HRA deduction under Section 80GG, they will be eligible to get an exemption of ₹5,000 per month or 25 per cent of the adjusted total income, or actual house rent paid minus 10 per cent of the adjusted total income, whichever is lower.

Documents required to claim HRA:

1. Home rental receipts with acknowledgements from the landlord with the landlord's PAN card details in case rent exceeds ₹1,00,000 annually.
2. The rental agreement of the property.