Providing fake rent receipts to claim a deduction under House Rent Allowance (HRA) is a tactic that many salaried employees have used at some point in their lives to enjoy tax benefits.
The Income Tax department is now going to scrutinise the receipts submitted under HRA and on suspicion may ask you for proofs such as rental agreement, electricity bill, water bill etc.
What is HRA?
HRA – house rent allowance – is what employees are offered as part of their salary to cover their expenses towards rent. It is not completely taxable like your basic pay. It is exempted under Section 10 (13A) of the Income Tax Act. HRA exemption can be claimed only if the employee stays in a rented house.
Claiming HRA deductions
When you claim a tax deduction under HRA, you must keep in mind that you, your spouse, or your minor child, or as a member of a Hindu Undivided Family (HUF) must not own any accommodation. If you own a residential property anywhere in India and you earn rent from it, no HRA deduction is applicable to you.
What has changed recently?
The Income Tax Appellate Tribunal (ITAT) has now vested power on the assessing officers to question salaried employees when not satisfied with their claims under HRA. The assessing officers can take action against the employees under scrutiny if they fail to provide address proofs such as lease and license agreement, electricity and water bill etc.
Do you need to submit landlord’s PAN details?
If the annual rent you pay exceeds Rs. 1 lakh, you need to submit the PAN details of your landlord. For a lower rent, the PAN details need not be disclosed. In case the landlord does not hold a PAN card, they would have to make a declaration specifying this, along with providing their complete name and address. The landlord’s identification proof is also mandatory.
What happens if the landlord doesn’t provide you with PAN details?
Under circumstances where the landlord is unwilling to share PAN card details or provide declaration about not having one in the first place, you may have to give up on your HRA deduction. However, you may claim a refund while declaring your IT return by providing rent receipts and rent agreement.
It is advisable to use cheques or account transfers while paying rent to your landlord. Such payment receipts may work as payment proof. You can also send emails and letters asking for PAN card details from your landlord, as they can help you prove your case if the landlord refuses to share his PAN details.
The best practice to avoid this quagmire is to make it part of your rental agreement for the landlord to share their PAN details.