Paying house rent in cash does not, by itself, prevent a salaried employee from claiming House Rent Allowance (HRA) exemption. However, the key is being able to establish that the rent was actually paid.
The Income Tax Department lists rent receipts among the documents needed for calculating HRA when the receipts have not already been submitted to the employer.
Cash rent is allowed, but keep proof
If you pay your landlord in cash, make sure you collect a rent receipt for every payment. The receipt should clearly record the landlord’s name, the rented property, the period for which the rent was paid and the amount.
A rental agreement can also support your claim. Keep the receipts signed and dated and preserve them along with the agreement and other relevant records.
A bank statement showing a cash withdrawal can support the trail of funds, but the withdrawal itself does not establish that the money was paid as rent. The rent receipt is therefore important evidence of the actual payment.
What is the HRA exemption limit?
For taxpayers eligible to claim HRA exemption under Section 10(13A), the exemption is calculated based on the lowest of three amounts: actual HRA received, rent paid minus 10% of salary plus eligible dearness allowance, and 50% of salary plus eligible DA for specified metro cities or 40% for other locations.
The exemption is available under the old tax regime. The Income Tax Department says HRA exemption under Section 10(13A) is not available under the new tax regime.
What about rent above ₹1 lakh?
If annual rent exceeds ₹1 lakh, taxpayers claiming HRA generally need to provide the landlord’s PAN details. It is therefore important to keep the landlord’s details and rent documentation in order.
Also remember that you do not normally attach these documents to an electronically filed return. The Income Tax Department says taxpayers should retain documents such as rent receipts and rental agreements in case they are required during assessment or inquiry.
So, paying rent in cash does not automatically disqualify you from HRA exemption. The important part is maintaining credible documentation that supports the rent claim.