Recently a social media user posted a query wherein he outlined his problems with claiming the house rent allowance (HRA), which he was facing due to an adamant landlord, who was refusing to share his PAN details with him.
“I want to claim tax exemption for my rent paid. But despite my yearly rent being higher than Rs. 1 lakh, my landlord is not sharing his PAN details. The landlord tells me that he does not need to share his PAN with me. I have claimed rent exemption without giving his PAN. Will it be a problem for me in future?” he asked.
Your Duty As A Landlord
While renting out your house property, you must have made a rent agreement with your tenant. The tenant might be paying you rent either by cheque or through Netbanking or UPI. He must also be claiming HRA exemption in his income tax return.
So, the income that you are receiving will automatically get recognised in your annual information statement (AIS), and you have to pay the tax on it anyway. Otherwise, it could we be taken as a case of tax evasion.
If you argue that you will take cash from the tenant, and, therefore, not share your PAN details with him/her, then also you will get caught, since the tenant will claim HRA exemption.
Put simply, there cannot be a one-sided rent payment transaction, since if someone is paying rent and claiming exemption, then someone else is by default receiving the rent.
What Problem Did This User Face?
The landlord of this user was not sharing his PAN despite the yearly rent being above Rs. 1 lakh. What happens is that once the landlord’s PAN gets reported by the tenant, the entire rent information will be updated in the annual information statement (AIS) of the landlord, and hence, the landlord will have to show his rental income and pay the applicable tax. Doing otherwise will lead to a case of tax evasion.
Your Duty As A Tenant
As a tenant, always insist on having a rent agreement made with the landlord and pay the rent either by cheque, or online, so that you have an additional proof of the rent being paid. If you are paying via cheque, then inscribe your rent details for the month behind the cheque, and take a note of the cheque’s details.
Also, if your yearly rent is above Rs 1 lakh, quote the landlord’s PAN or give a declaration about the same and submit it to your company for claiming HRA. The HRA exemption amount is the difference between the HRA received and the HRA exemption amount as defined by the Income-tax Act, 1961.
How Much HRA Is Exempt Under Income Tax Act?
HRA will be lower of the three:
1] Actual HRA received
2] 50 per cent of salary (metro cities)/40 per cent of salary (non-metro)
3] Actual rent paid less 10 per cent of salary
Here, salary means only Basic Salary and Dearness Allowance.
Archit Gupta, founder and CEO, Clear (formerly Cleartax), a tax filing assistance company, says that HRA is eligible for exemption only if one is living in a rented accommodation. To prove the same, one needs to produce a valid proof of the rent paid. The proof can be the house rent receipts, or a rent agreement with the landlord.
Can A Tenant Claim HRA Without Getting HRA Benefits From Company?
If for any reason in your Form 16, the HRA exemption amount is not mentioned, but you are making payments towards rent for any furnished or unfurnished accomodation which is occupied by you for your own residence then then you can directly claim HRA exemption while filing the income tax return subject to certain conditions.
Gupta advises people to maintain adequate proof, as the income tax assessing officer may ask for it, if required, for the purpose of satisfying himself that the employee has actually incurred rental expenses. Gupta advised such individuals to take help of Section 80GG, but subject to fulfilment of certain conditions.
Eligible Amount of Deduction Under 80GG – 80GG Deduction Limit will be the lowest of these:
- Rs.5,000 per month
- 25% of the total Income (excluding long-term capital gains, short-term capital gains under section 111A and Income under Section 115A or 115D and deductions under 80C to 80U. Also, income is before making a deduction under section 80GG).
- Actual rent less 10% of Income
Conditions to fulfill for claiming deduction under section 80GG:
- You must not received HRA at any time during the year for which you are claiming 80GG HRA component should not form part of your salary to claim 80GG.
- You or your spouse or your minor child or HUF of which you are a member – do not own any residential accommodation at the place where you currently reside, perform duties of the office, or employment or carry on business or profession.
- In case you own any residential property at any place, for which your Income from house property is calculated under applicable sections (as a self-occupied property), no deduction under section 80GG is allowed.
