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  • PAN Card for HRA Exemption

    According to a government notification, PAN card information will now be required when filing HRA (House Rent Allowance) claims returns by employees. The government has stated that the landlord’s PAN card details will have to mentioned on the exemption form in case of house rent exceeding Rs. 1 lakh in a year.

    What is HRA Allowance?

    The HRA or House Rent Allowance is a subset of an employee’s salary which is provided to cover the cost of accommodation up to a certain percent. As the employee would be spending this amount on accommodation, the government does not expect the employee to pay tax on this amount and the employee can claim a tax exemption for the HRA amount.

    As per the prevailing rules, HRA exemption can be claimed for the following amounts:

    • On the actual HRA received.
    • Balance of rent paid over 10% of the employee’s total salary.
    • Up to 50% of the salary if the employee resides in Mumbai, Delhi, Kolkata or Chennai. The percentage is 40% for other cities.

    Change in Tax Laws – Pan Card of Landlord for HRA Exemption

    According to an earlier notification, the landlord’s PAN card details were to be mentioned in the form when filing a tax exemption for HRA if the annual figure was above Rs. 1, 80, 000.

    However, in 2013, the government released a new circular stating that PAN details had to be mentioned for HRS exemptions for amounts above Rs. 1,00,000.

    Reason for Change in Law

    The government reduced the figure that employees could file HRA exemptions for, without their landlord’s PAN details, in 2013. The reason for this is listed below:

    Employees submitting fake rent receipts in order to claim exemption:

    There have been cases where employees submit fake rent receipts in order to claim the HRA exemption. As the exemption figure rises with the employee’s salary, employees who do not pay rent, too, attempt to claim the HRA exemption to avoid paying tax on the amount.

    There are also cases where employees submit fake receipts that are higher than the amount they actually pay as rent.

    By including the landlord’s PAN card details for HRA exemption claims that total over Rs. 1 lakh per annum, the government will be able to ascertain if the employee is actually paying the amount in question.

    Landlords Not Paying Tax on Rental Income:

    The government has found that a number of individuals who lease properties and collect rent do not pay tax or declare this income in their tax return. As a way to ensure that individuals declare this income, the government has made it mandatory for renters to include the PAN details of the landlord in exemption claim form, so they can check if the landlord is declaring the rent as income when filing tax returns.

    New Law Perquisites

    As per the law in force, all employees who declare HRA of above Rs. 1, 00, 000 a year will be required to submit their landlord’s PAN details when claiming exemption.

    The employee is required to submit a form, known as the PAN Card Declaration from Landlord along with the tax exemption claim form. The PAN Card Declaration from Landlord is to be printed on A4 size blank paper and is to include the following:

    • An undertaking from the landlord stating his/her name.
    • Confirming that the property has been given on rent to the employee.
    • Address of the property given on rent.
    • Amount the employee is paying as rent.
    • The landlord’s PAN card number.
    • The landlord’s name and address.
    • Landlord’s signature.

    In case the landlord does not have a PAN card, the employee is to submit a declaration by the landlord stating he/she does not possess a PAN card.

    In the case of landlords who refuse to provide PAN card details or sign the declaration, the employee can write to the Income Tax department and request for the landlord’s PAN card information (by providing information relating to the reason and the landlord’s personal details).

    Penalty for Non-Submission of Documents

    If the employee claims HRA for amounts above Rs. 1, 00, 000 without submitting the required documents and declaration, the employee will not receive the tax exemption. The HRA amount will be clubbed with the employee’s salary and taxed according to relevant tax slab.

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