Submit Proof for your HRA exemption Claims: Says IT dept.

 For all who out there claiming tax deduction on Fake HRA, you have a bad news! The Income tax  department has decided to change the rule and make it tough from now on.

The tax sake on HRA is accessible only to a salaried individual who has the HRA component as part of his salary structure and is staying in a rented housing. HRA can be moderately or fully free from taxes. Self-employed professionals cannot claim the deduction. 

The tax reduction on HRA is the amount that is the base under these three options:

1.         Actual HRA that you get;

2.         50 per cent of your basic salary and dearness allowance if you are living in a      metro. It is 40 per cent if you are living in a non-metro city

3.         Actual rent paid by you is 10 per cent of the salary.

Pan card is mandatory if they paid more than 8,333 /- per month. This permits the taxman to examine if your landlord has given the details of the income from house rent in his/her tax return.

For almost every employee, HRA is a common component of their salary. HRA is part of salary but it is not entirely taxable like basic salary. Depends on certain conditions, a part of HRA gets exempted under Section 10 (13A) of the Income-tax Act.

Section 10 (13A) of the Income-tax Act:-

Section 10(13A) of the Income Tax Act provides for indemnity on HRA. The Income Tax Act exempts a part of HRA under section 10(13A) read with 2A, with some specific conditions. In which city the Assesse is living will also define the amount of exemption eligible under section 10(13A). There is also a special exemption HRA clause for Supreme Court and High Court Judges. Section 10(13A) of the Income Tax Act is very prominent distribution among the salaried employees.

Producing Fake receipts for HRA reduction:-

Many of tax payers used to produce fake rent receipt for getting HRA for tax reduction. There may soon be unpleasantness for those who have been producing fake rent receipts to save income tax.

Fake receipts won’t help reducing tax burden. For as long as anyone can fabricate fraud receipts such as fake property rent receipt, often from parents and relatives, has been an easy way to reduce tax burden. This ignorance for tax rule failed to notice by employers as well as taxman. This could be a major offence from now on.

The income tax department has a now a good reason for demanding on proof from the tax payer showing that he is really a genuine tenant, staying in property is question.  A tax payer who receives rent allowance from employer could make a relief of 60% on tax by generating sham rent receipt.

According to a current board of ruling, the assessing officer can now request for letter to the housing co-operative society informing about the tenancy, leave and license agreement, electricity bill, water bill etc. as proof in granting a lower taxable income as enumerated by a salaried employee.  

There are some norms put forward by the income tax appellate tribunal for the assessing officer to contemplate the claim of salaried employees if required question its basis. It imposes more responsibility on salaried employees to follow the rules for getting the tax rebate. If a person submits a fake receipt, then he doesn’t have any required documents. There may not be an actual rent flow from the person who staying in his own home. If he is an actual tenant the rate mentioned in receipt may more than he actually paid. This will not create a problem if the person accepting the rent is outside the tax net. The person claims to pay rent to a relative owning property; But he staying individually in same city. There are assorted occasion where the person may be staying individually but; or, one of member of the family claiming a loan repayment subtraction while another submitting a false rent receipt to evade tax.

In the annual budget of this year, the Finance Minister had suggested that those who are claiming a House Rent Allowance (HRA) of more than Rs 50,000 per month will have to reduce tax at source at the rate of five per cent.

The TDS will have to be deducted on the last month of the year in which rent is paid or last month of tenancy

From Government view this amendment would make sure that there are no revenue loses on account of such rental income. This will also demoralize people who were claiming the HRA deduction fraudulently quoting wrong Permanent Account Number (PAN) of the landlord. Quoting PAN of the landlord was mandatory in case the rent paid during the year was more than one lakh a year.

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