Choosing between the old and new tax regimes is a significant decision for taxpayers, with the former catering to those eligible for various exemptions and deductions, including House Rent Allowance (HRA), health insurance, and more. In contrast, the latter benefits individuals with fewer deductions. The selection depends on individual circumstances, prompting taxpayers to carefully evaluate both regimes before deciding.
For taxpayers claiming HRA under the old tax regime, understanding key aspects is crucial. Firstly, HRA is not fully exempted, and its calculation involves considerations such as actual HRA received, a percentage of basic salary based on city classification, and rent paid minus 10% of basic salary. It’s important to note that HRA deduction only applies to rent paid for residential premises, excluding utilities.
Documentation plays a vital role in claiming HRA exemption. Employees need to submit evidence, including rent details, landlord’s name and address, and the landlord’s PAN if rent exceeds Rs 1 lakh. In cases where the landlord lacks a PAN, employees should obtain a declaration in Form 60, ensuring the landlord’s income doesn’t surpass the non-taxable limit. While there are no restrictions on claiming HRA for rent paid to parents or relatives, maintaining a paper trail is advisable.
Additionally, rent receipts above Rs 5,000 per month should bear a revenue stamp. Simultaneously claiming tax benefits for HRA and a home loan is permissible, provided conditions under tax laws are met. Notably, HRA benefits apply only if the taxpayer is renting residential accommodation, not owned by them. The calculation considers the actual period of rent payment, not the entire year, providing flexibility in claiming benefits.
For those paying rent exceeding Rs 50,000 per month, adherence to section 194IB is crucial. A 5% TDS should be deducted and deposited, with a challan cum statement of deposit (form 26QC) submitted to the employer along with the rent receipt.
Lastly, caution is advised against making bogus deductions and claims. Falsely claiming deductions like HRA without proper reflection in Form 16 may attract the tax department’s attention, leading to potential investigations. It’s imperative to be truthful and accurate in deductions to avoid complications.
In conclusion, navigating the intricacies of HRA exemptions under the old tax regime demands careful consideration of calculation methods, required documents, simultaneous benefits with home loans, exceeding rent limits, and the importance of truthful deductions. By understanding these aspects, taxpayers can make informed decisions aligned with their financial situations and tax obligations.