5 Common Mistakes to Be Avoided While Claiming HRA Exemption

House Rent Allowance is a component of most employees’ pay packages. Despite the fact that it is a portion of your income, House Rent Allowance, unlike your basic salary amount, is not completely taxed. A portion of HRA is free from taxation under IT Act Section 10 (13A), given that certain criteria are fulfilled.

This article provides a detailed description of the common mistakes which need to be avoided while claiming HRA deduction.

Not Having a Valid Rental Agreement or Contract:

Anyone seeking HRA deduction must have a genuine rental contract. The rent contract must include all important information, like the sum of monthly rent, the length of the lease, any utility bills the tenant needs to pay, and so on.

It is critical that you and the property owner have a formal agreement, even if the landlord is your spouse or your parents. The contract must include the address of the property you are renting, as well as any extra expenses, such as utilities or property tax that you are responsible for.

Owning the Rented Property:

The individual requesting the HRA deduction should not own the rental property. So, if you live with your family and pay them monthly rent, you can still claim a tax deduction under House Rent Allowance.

If you are paying rent to your spouse and seeking an HRA deduction, there are certain rules you need to fulfill. Firstly, you cannot reside with your spouse even if you pay rent to him or her. If you and your spouse jointly own the rented property, there must be a clear description of the parts she owns and you are only allowed to live within that boundary. If she owns the property as a whole, the property needs to be bought or inherited by her. Transferred property can be considered as a “gift” if done without proper pay-outs.

The income tax agency may investigate such transactions to make sure you are not owning the property you are living in.

Not Keeping Rent Receipts:

Every month, regardless of the method of payment, you must get a receipt for the amount of rent you have paid. In addition to being helpful in future rent disputes, these receipts are also legal proof that you are paying for the rented property. To know more, click on the link below: https://www.turtlemint.com/save-tax-on-house-rent-allowance/

Not Providing Landlord’s PAN:

If your rent payment exceeds the amount of 1,00,000 INR per year, you must present your employer with your landlord’s PAN details in order to receive the full advantage of the HRA deduction.

If PAN Card details are not accessible, your landlord should be ready to provide you with a declaration to that effect. You must confirm this before renting a home so that you may take advantage of your employer’s HRA deduction. In addition to the declaration, you must get a fully completed ‘Form 60’ from your landlord if PAN Card is not accessible. These must be sent to your employer.

Paying over the Amount Mentioned in Contract:

There may be instances where a person pays more rent than the amount specified on the lease contract and the excess amount is paid in cash to the landlord. If this occurs, the HRA deduction amount will be determined only on the grounds of the rent receipt provided by the employee indicating the amount paid as rent. Any sum paid in excess of the provided rent receipt will not be evaluated for the objective of HRA deduction.

It is thus important to only pay the amount specified in the rental contract. In case, the amount increases, you should update the documents as well. The rent receipt should portray the exact amount you are paying as rent every month.

How to calculate HRA deduction amount?

The amount you will get as HRA deduction will be the minimum of the following values:

  1. The actual amount received as HRA
  2. 40% of your Salary (50% of your Salary if the applicant lives in a metro city of India)
  3. Excess rent paid more than 10% of Salary.

Here, the amount termed as “Salary” is the applicant’s Basic Salary along with the amount of Dearness Allowance as well as any commission obtained depending on the sales turnover value. The tax benefit of the HRA deduction is only accessible to the individual during the time that the rented residence is inhabited.


House Rent Allowance is a hidden gem and an amazing tax-saving benefit if you claim it right. Don’t miss out on claiming your HRA deduction. One of the most common mistakes while claiming HRA deduction is not providing the rent receipt to the employer. It is always advisable to keep the rent receipt with filing your taxes as it is needed for proof whenever required. Make sure you are avoiding the mistake made by people while claiming HRA deductions every year. Handling the documentation correctly and being legitimate in your claims will ensure that you not only save money in taxes but also save yourself from penalties.

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