Any salaried person would have heard of a term called HRA (House Rent Allowance). It not only gives benefit in the form of allowance but also gives an opportunity for tax exemption up to a certain limit. Almost every salaried employee takes this benefit. IT department also provides the facility of claiming tax benefit on HRA for rent paid to parents.
HRA exemption can be availed up to least of the following:
1) Actual HRA received.
2) Excess of rent paid over 10% of the salary.
3) 50% of salary if house is located in Delhi, Mumbai, Kolkata or Chennai. 40% elsewhere.
Change in Rule
Until now, tax payers did not have to provide landlord’s PAN unless the rent was Rs. 1,80,000 p.a or Rs. 15,000 per month. However, IT department has put its foot forward in this regard and lowered the limit to declare landlord PAN to Rs. 1 lakh p.a or Rs. 8,333 per month. The reason IT department has brought about this new rule is because it believes there are a lot of fake receipts being submitted while claiming HRA exemption.
Landlord needs to report Income
The landlord has to report this income while filing his tax returns. If there is a discrepancy in reporting this income, he/she would face the consequences. Hence, people who are reporting to have paid rent to their parents for the purpose of HRA exemption need to be even more cautious now as they have to declare their parents PAN if rent crosses Rs.1 lakh p.a.
Exemption for Rent Receipts
However, employees who receive HRA up to Rs. 3,000 per month are not required to submit receipts for proof of rent paid. It may not benefit huge number of tax payers, though. This concession is only for the purpose of TDS (Tax Deduction at Source), and, in the regular assessment of the employee, the Assessing Officer will be free to make such enquiry as he deems fit for the purpose of satisfying himself that the employee has incurred actual expenditure on payment of rent.
If Landlord does not have PAN
In case the landlord does not have PAN, employee should submit a declaration stating the same along with the landlord’s details. The new rule is set to trouble the tax payers more as we know that a lot of landlords would be unwilling to submit PAN details or even give a declaration.
What if documents are not submitted?
The documents need to reach the IT department within February month of next calendar year. If it’s not the case, the HRA exemption given will be reversed and the entire HRA amount will be clubbed with the salary and taxed according to the tax slab.
This new rule is definitely a set back for a lot of salaried people since there were many of those who were claiming HRA exemption even without paying rents. But, even the honest tax payers would be hit hard on account of this new rule because of the reluctance of landlords to neither submit PAN nor give a declaration.
About the Author:
A.V.Suresh is our in-house Financial Planner and a personal finance enthusiast. He is a Certified Financial Planner(CFP) and also has an MBA in Finance. He can be reached at firstname.lastname@example.org