A recent decision by one of the tribunal might help government to augment it’s ongoing mission to increase the total tax revenue.
As per rules of the income tax, a salaried person by declaring very basic details about the rental property and the owner detail can claim the House Rent Allowance (HRA) exemption on the income tax. Generally this declaration is done to their corresponding employer in the beginning of the year and based on the employee’s Basic + DA salary and the notified HRA rules for the metro and non metro cities , employer adjust the amount of tax deducted at source (TDS) accordingly. Employee just need to submit a simple declaration and no other proof is required. Taking advantage of this loophole some tax payers submit fake HRA receipt.
Well , as per reports an Income tax tribunal has ruled that in case tax assessing officer feels any discrepancy w.r.t claimed HRA then s/he may ask tax payer for proof against same. Proof can range from producing rent agreement to rent payment receipit. In case, tax payer is not able to produce the required proof then income tax department can either cancel the HRA exemption or even take it up for prosecution in accordance with prevailing tax laws.It is a welcome move as many owners force tenants to pay rent in cash and don’t declare the rent amount received in their taxable income. As a result of this government has to bear the double burden, as on one side it give tax exemption to tenant under HRA and on other, owner don’t pay any tax on the rental income if he don’t declare it as part of his/her income.
What is changing ?
– There has not been any rule change as Such but as a result of a tax tribunal ruling tax assessing officer can seek proof if he feel any discrepancy in the HRA claim.
Who all will be impacted ?
-If you claim your HRA honestly or if you leave in your own house and don’t claim HRA at all then you can ignore this. But if you have been involved in producing fake rent receipt then better do away with that as getting caught on same can have some serious implication. Considering the fact that income tax department now days is using lot of data mining tools to figure out the gaps so there are very high chances of your bluff getting called off.So it’s better to claim what is real.
What precautions should be taken?
1)Refrain from inflating your rent or submitting tempered rent receipts.
2)If you stay in a rented house then you should use same address in your tax return forms.
3)You should prefer to pay rent by digital means as it leave a transaction trail , in case owner can’t receive it digitally or is deliberately forcing for cash then you should ask for a rent receipt.
Honesty comes with a premium so wear it proudly 🙂