3 weeks ago

Cash rent doesn't void HRA claim, but poor documentation might

Cash rent doesn't void HRA claim, but poor documentation might
Rent paid in cash is not illegal, but this one mistake could cost salaried tenants their HRA benefit · livemint.com

When you work at a job in India, your company may give you extra money called House Rent Allowance, or HRA, to help pay for the place you live.

Some landlords like to be paid in cash, and that is okay.

Paying rent in cash does not mean you cannot get a tax benefit from your HRA.

But the tax office needs proof that you really paid the rent, and cash is harder to prove than a bank transfer.

The amount of tax you save depends on your salary, the rent you pay, and whether you live in a big city or a smaller one.

Only the smallest of three possible amounts is saved from tax, and the rest is added back to your taxable salary.

You should keep a rent agreement and get a receipt from your landlord every month showing the name, address, month, and amount.

If your yearly rent is more than one lakh rupees, you also need the landlord's PAN card number.

If your rent is more than ₹50,000 a month, special tax rules apply.

So cash rent is allowed, but keeping good records is very important.

Key facts

Cash rent and HRA
Allowed; does not disqualify HRA claims under the old tax regime
Exemption rule
Least of HRA received; rent paid minus 10% of salary; 50% of basic salary (metro) or 40% (non-metro)
Business cash limit
Cash rent above ₹10,000 per day disallowed as expense under Section 40A(3)
Revenue stamp
Required on cash rent receipts above ₹5,000
Section 269ST
Landlords cannot accept ₹2 lakh or more in cash from one person per day
TDS threshold
TDS provisions apply when monthly rent exceeds ₹50,000
PAN requirement
Landlord's PAN needed when annual rent exceeds ₹1 lakh

Quotes

Siddharth Maurya

Managing Director at Vibhavangal Anukulkara Pvt Ltd

“"The general idea is that cash rent payments do not negate HRA claims, but poor documentation will result in a claim that is difficult to defend if it is challenged by the tax authorities."”
livemint.com
“"For a business assessee, cash rent above ₹10,000 in a day is disallowed as an expense under Section 40A(3)," said Chandni Anandan, tax expert at Cleartax.”
livemint.com

Sources

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