How to Claim HRA Deduction in Your Tax Filing Under the New Tax Regime and Avoid Penalties?

House Rent Allowance (HRA) is a key part of many salaried employees’ pay, offering tax relief on rent paid. However, with India’s new tax regime, the treatment of HRA has changed significantly. Unlike the old regime where HRA exemption was allowed, under the new tax regime, the entire HRA amount received from your employer is fully taxable. This means you cannot claim any HRA exemption while opting for the new regime. Properly reporting HRA in your Income Tax Return (ITR) is essential to avoid mismatches, notices, or penalties from the Income Tax Department. You must include the full HRA amount as taxable income in your ITR and ensure your Form 16 and Form 26AS match to prevent discrepancies. If you pay rent but do not receive HRA, you may claim deductions under Section 80GG, which is allowed in both regimes with specific conditions. Accurate reporting and selecting the correct tax regime are crucial to stay compliant and avoid penalties while filing your tax returns.

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Table of Contents

• How to Claim HRA Deduction in Your Tax Filing Under the New Tax Regime and Avoid Penalties?

• Can You Claim HRA Deduction Under the New Tax Regime?

• Step-by-Step Guide to Reporting HRA in Your ITR Under the New Tax Regime

• Is Section 80GG Deduction Allowed in the New Tax Regime?

• How to Avoid Penalties When Claiming HRA Under the New Regime

• Comparison of HRA Benefits: Old Tax Regime vs New Tax Regime

• How TaxBuddy Supports Accurate HRA Reporting and Tax Filing

• Conclusion

• FAQs

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How to Claim HRA Deduction in Your Tax Filing Under the New Tax Regime and Avoid Penalties?

Under the new tax regime, claiming HRA deduction is not allowed, as the entire House Rent Allowance received from your employer is fully taxable. To avoid penalties, it is important to accurately report the full HRA amount as taxable income in your Income Tax Return (ITR) without claiming any exemption. If you pay rent but do not receive HRA, you may still claim a deduction under Section 80GG, subject to specific conditions. Ensuring that your Form 16 and Form 26AS reflect correct salary and TDS details helps prevent discrepancies and tax notices. Careful reporting and regime selection are key to staying compliant and avoiding penalties.

Can You Claim HRA Deduction Under the New Tax Regime?

Under the new tax regime, taxpayers cannot claim exemption on House Rent Allowance under Section 10(13A). The entire HRA amount received from the employer is considered part of taxable salary, regardless of rent payments. This contrasts sharply with the old tax regime, which allowed partial or full exemption on HRA if certain conditions were met—such as living in rented accommodation and providing rent receipts. However, if an individual opts for the new tax regime to benefit from lower tax rates and simplified deductions, they must treat HRA as fully taxable income. Therefore, no deduction or exemption on HRA is allowed, and claiming it could lead to tax notices or penalties.

Step-by-Step Guide to Reporting HRA in Your ITR Under the New Tax Regime

1. Select the New Tax Regime When Filing: While filing your ITR, ensure that you select the new tax regime option explicitly, as the tax benefits and deductions vary significantly.

   
   

2. Use Form 16 for Salary Details: Obtain Form 16 from your employer, which will show your gross salary including the HRA component. Under the new regime, this HRA amount is fully taxable and included in your taxable salary.

   
   

3. Report Full HRA as Income: Enter the entire HRA amount as part of your salary income in the ITR form’s income details section. Do not claim any exemption or deduction against this component.

   
   

4. Verify TDS Details: Cross-check the TDS deducted as shown in Form 16 with Form 26AS to ensure consistency. If the employer has incorrectly allowed HRA exemption under the new regime, request a corrected Form 16 before filing.

   
   

5. Avoid Claiming HRA Exemption: Do not enter any HRA exemption under the ‘Exempt Income’ section; this is not permissible under the new regime.

   
   

6. File and E-Verify Your Return: After accurate reporting, complete your return filing and verify it electronically to validate the submission.

   
   

7. Claim Refunds if Applicable: If excess TDS was deducted due to misreporting, you can claim a refund after filing the correct ITR.

   
   

Is Section 80GG Deduction Allowed in the New Tax Regime?

Section 80GG of the Income Tax Act provides a valuable deduction for taxpayers who do not receive House Rent Allowance (HRA) from their employer but still incur rental expenses for accommodation. This deduction is available under both the old and new tax regimes, making it especially important for those opting for the new regime where HRA exemption is not permitted. To qualify for Section 80GG, several specific conditions must be met: the taxpayer should not own any residential property in the city where they currently work or stay, and they must actually be paying rent for their accommodation.

The amount deductible under Section 80GG is subject to certain limits. The deduction allowed is the least of the following three amounts: actual rent paid minus 10% of total income, ₹5,000 per month, or 25% of total income. “Total income” here refers to the gross income before any deductions. It is important to maintain proper rent receipts and a rent agreement to substantiate the claim in case of any inquiry by the Income Tax Department.

Notably, if a taxpayer receives HRA from their employer, they are not eligible to claim the Section 80GG deduction. This is to avoid duplication of rent-related tax benefits. Under the new tax regime, where HRA exemption is disallowed, Section 80GG remains one of the few legal avenues for taxpayers to claim relief on rent paid, provided they meet the eligibility criteria. Proper documentation and accurate reporting of this deduction in the Income Tax Return (ITR) are essential to avoid notices or penalties.

How to Avoid Penalties When Claiming HRA Under the New Regime

Do Not Claim Exemptions Not Allowed

Under the new tax regime, claiming exemptions such as HRA is strictly prohibited. Attempting to claim HRA exemption when filing under this regime can lead to serious consequences, including scrutiny from the Income Tax Department. Such incorrect claims may trigger tax notices demanding explanations or additional documentation. Persistent failure to correct the error can result in penalties, interest on unpaid tax, or even further legal actions. It is essential to fully understand that the new regime removes most exemptions to simplify taxation, and abiding by these rules avoids unnecessary compliance risks.

Accurate Regime Selection

Choosing between the old and new tax regimes is a crucial decision. The new regime offers lower tax rates but disallows popular exemptions like HRA. Taxpayers who rely heavily on exemptions for tax planning should carefully consider whether the benefits of the new regime outweigh the loss of deductions. If claiming HRA exemption is important for your tax savings, it may be financially wiser to continue with the old regime. Proper evaluation of your income, deductions, and exemptions helps ensure you select the tax regime best suited to your financial situation and avoid mistakes during filing.

Maintain Proper Documentation

Even though HRA exemption is not available under the new regime, maintaining proper documentation such as rent receipts, rental agreements, and payment proofs is vital. These documents serve as evidence of your living arrangements and rent payments. The Income Tax Department may request these records during assessments or if discrepancies arise in your tax filings. Keeping organized and accurate records not only helps in potential audits but also ensures you are prepared should you choose to revert to the old regime or claim deductions under Section 80GG.

Cross-Verify Salary and TDS

Accuracy in tax filing requires reconciling the salary details and tax deductions reported by your employer with those reflected in government records. Cross-verification between Form 16 (issued by your employer) and Form 26AS (tax credit statement from the Income Tax Department) is essential to confirm that your taxable salary includes the full HRA component as per the new tax regime, and the Tax Deducted at Source (TDS) matches accordingly. Any mismatches must be addressed before filing your ITR to prevent processing delays, notices, or penalties. Early detection of errors helps ensure smooth tax compliance.

Seek Professional Assistance

Navigating the complexities of tax laws and regime changes can be challenging. Utilizing trusted platforms like TaxBuddy can provide expert guidance and automated validation to ensure correct tax filings. TaxBuddy’s services help verify income details, check deduction eligibility, and reconcile tax credits efficiently. Access to professional help reduces the likelihood of errors, underreporting, or missed deadlines, minimizing the risk of tax notices and penalties. Whether opting for self-filing or expert-assisted plans, leveraging such platforms offers convenience and confidence in managing your tax obligations accurately.

Comparison of HRA Benefits: Old Tax Regime vs New Tax Regime

Feature	Old Tax Regime	New Tax Regime
HRA Deduction	Allowed under Section 10(13A)	Not allowed; full HRA taxable
Section 80GG (Rent Paid)	Allowed if no HRA received	Allowed if no HRA received
Standard Deduction	₹50,000	₹75,000
Other Deductions (80C, etc)	Allowed	Mostly not allowed
Tax Rates	Higher, slab-based	Lower, simplified slabs

How TaxBuddy Supports Accurate HRA Reporting and Tax Filing

TaxBuddy provides an easy-to-use platform that guides taxpayers through the complexities of tax filing under both regimes. It automatically incorporates updated rules on HRA treatment, helping users avoid incorrect claims and penalties. TaxBuddy’s app offers detailed salary breakup assistance, ensures Form 16 and Form 26AS match, and alerts users about regime selection impacts. Additionally, it offers expert-assisted plans for those needing personalized advice, making tax filing seamless, accurate, and worry-free.

Conclusion

Understanding the nuances of HRA under the new tax regime is vital to avoid costly mistakes and penalties. While the new regime offers simplified tax rates, it disallows HRA exemptions, requiring full reporting of HRA as taxable income. Careful selection of the tax regime, accurate income reporting, and reconciliation of TDS are essential for smooth tax filing. For anyone looking for assistance in tax filing, I highly recommend you download the TaxBuddy mobile app for a simplified, secure, and hassle-free experience.

FAQs

Q1. Does TaxBuddy offer both self-filing and expert-assisted plans for ITR filing, or only expert-assisted options?

TaxBuddy provides flexible options including both self-filing and expert-assisted plans. Users can choose to file their ITR independently using the platform’s guided interface or opt for professional assistance for more complex filings, ensuring accuracy and peace of mind.

Q2. Which is the best site to file ITR?

The best site to file ITR depends on ease of use, security, and support. TaxBuddy stands out as a trusted, authorized e-return intermediary offering a seamless, user-friendly interface, expert help, and timely updates to ensure hassle-free filing.

Q3. Where to file an income tax return?

Income tax returns can be filed on the official government portal (incometax.gov.in) or through authorized platforms like TaxBuddy that offer simplified filing experiences and support for both new and experienced taxpayers.

Q4. Can HRA exemption be claimed under the new tax regime?

No, under the new tax regime, HRA exemption is not available. The full HRA amount received is taxable and must be reported as part of your salary income.

Q5. What if I mistakenly claim HRA exemption under the new regime?

Claiming HRA exemption under the new regime may lead to notices from the Income Tax Department and possible penalties. It is important to file a revised return correcting this mistake to avoid legal complications.

Q6. How does Section 80GG work under the new tax regime?

Section 80GG allows rent deduction for taxpayers who do not receive HRA but pay rent. This deduction is available under both tax regimes with conditions such as not owning a residential property at the place of work.

Q7. How to ensure Form 16 and Form 26AS match for HRA and TDS?

Cross-check the salary breakup in Form 16 with tax deductions shown in Form 26AS. Any mismatch should be resolved by contacting your employer or tax consultant before filing your ITR.

Q8. Can TaxBuddy help with filing ITR under the new tax regime?

Yes, TaxBuddy offers tools and expert support tailored for the new tax regime, helping taxpayers correctly report income including full HRA, claim applicable deductions, and avoid errors or penalties.

Q9. What penalties apply for incorrect HRA claims under the new regime?

Incorrectly claiming HRA exemption under the new regime can result in penalties, interest on unpaid tax, and scrutiny from tax authorities, potentially leading to fines ranging up to ₹10,000 or more depending on the severity.

Q10. Is it better to opt for the old regime if HRA exemption is important?

If maximizing HRA exemption is a priority, the old tax regime may be more beneficial despite higher tax rates. It is advisable to compare your total tax liability under both regimes before deciding.

Q11. How to file a revised return if HRA exemption was wrongly claimed?

You can file a revised return under Section 139(5) within the prescribed timeframe, correcting the error by removing the HRA exemption claim and accurately reporting income as per the new regime.

Q12. Does TaxBuddy’s mobile app assist with accurate reporting of HRA and tax filing?

Yes, TaxBuddy’s mobile app provides a user-friendly platform that guides taxpayers in accurate income reporting, including HRA treatment, and offers real-time assistance to ensure error-free, compliant tax filing.