Why do you need the Rent Receipts and how to Generate them

Whether you are a beginner or an experienced professional, the HR of your company will ask you for rent receipts for the purpose of Income Tax Declaration. This is the time when most employees get frantic and check with their friends or colleagues about the best way to arrange these receipts. Most employees do not understand the math behind income tax calculation, why these rent receipts are important, or how they help you save tax

Let us delve deep into this subject and get an in-depth understanding of why we need rent receipts:

Why do you need to submit rent receipts?

If an employee wants to claim income tax benefit on House Rent Allowance (HRA), he/she has to provide the proof of payment of rent to the employer. In this regard, rent receipts serve as evidence. Basis the receipts submitted, the Indian Government provides deductions and allowances to the employee.

What is the tax benefit of monthly rent paid?

In case you are a salaried professional and you live in a rented house, you can avail HRA exemption to save tax under Section 10 (13A) of the Income Tax Act. For those who are self-employed, they can avail HRA tax deduction under Section 80GG.

You can calculate the HRA exempted amount using the steps mentioned below:

• Step 1: Actual HRA received from the employer
• Step 2: The rent you actually pay - 10% of sum of basic salary & Dearness allowance
• Step 3: In case you stay in a metro city, 50% of your basic salary & dearness allowance, else 40% of your basic salary & dearness allowance.

The lowest of these 3 components will be a part of your Exemptions, in Income Tax Calculation. Your final tax liability will be calculated based on the exempted HRA amount.

Understanding components of a valid rent receipt format

As explained above, a salaried employee has to submit a rent receipt as a proof of rental expenses to his company - this is in accordance with the Income Tax Act, 1961. A rent receipt is provided by the landlord when he receives the rent from the tenant - it has his signature that confirms the receipt of payment. If you are paying rent, you can submit evidence and save tax - total amount is reduced from your gross taxable income.

A rent receipt is only valid if it has certain components:

• Tenant Name
• Landlord Name
• Rent Paid
• Rental Period
• House Address
• Signature of Landlord

Some other elements that could be a part of the receipt include: PAN of the landlord, if annual rent exceeds ₹1,00,000 in a year and Revenue Stamp (where amount exceeding ₹5000 is paid).

How to generate Free Rent Receipts Online?

Please find below the steps to generate the rent receipts for FREE:

• Step 1: Fill in your full name and the monthly rent you pay to your landlord
• Step 2: Fill in your house owner's name, PAN number (if you have) and the full address of the rented property, where you reside
• Step 3: Enter the duration for which you need to generate the rent receipts
• Step 4: You can preview the sample receipt on the final screen and print all of them with just 1 click.

Important points to remember

• One must have a valid rent agreement - the agreement has to have all the relevant details including monthly rent, time period of agreement or any utility bills.
• If it is a shared accommodation, then all the details must be mentioned in the agreement, along with the number of tenants, ratio of how rent and utility bills are to be divided.
• It is better to pay rent online rather than by cash. This helps you keep track of the transactions in a seamless manner.
• One must ask for a rent receipt every time rent is paid. It is important to share rent receipts with the employer to claim HRA exemption for monthly rent paid above ₹3,000
• Besides rent receipts, if the rent payment exceeds ₹1 lakh annually, then it is mandatory to provide the PAN of the landlord to your employer to avail the full benefit of HRA exemption.
• If the PAN is not available, then the landlord must be ready to give a declaration. This must be confirmed before deciding on a house for rent. Along with the declaration, one needs to also obtain 'Form 60' duly filled by your landlord. These documents need to be submitted to the employer.
• There could be a situation, where an employee might pay a higher payment different from what is mentioned in the rent agreement. In this case, tax exemption is calculated on the basis of the rent receipt shared by the employee.

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