Bogus HRA Exemptions tracked automatically

Bogus HRA Exemptions tracked automatically

-Dr. Lalit Kumar Setia

The statement of annual information tracks the financial dealings of an individual with a PAN number. Like 26AS – Tax Credit Statement, the AIS can be downloaded by logging in to the incometax.gov.in portal.

PAN number relating dealings are tracked automatically

Wherever the bank account is opened, it is a must to mention the PAN number. Whenever any interest be credited in the saving or fixed deposit bank account, it will automatically be tracked in the Annual Information Statement (AIS). An individual has to verify only, at the time of filing the income tax return. Similarly, the income from dividends or income from the sale of sales, everything is connected with an account, opened with the PAN number.

Rental income will automatically be tracked

The employees in the job, require to give the PAN number of the landlord, to whom they are paying the rent. The employer while giving the HRA exemption, requires to insert the PAN number of the landlord to whom the rent is paid by the employee. This information will be included in the Annual Information Statement of the person whose PAN number is provided by the employee and submitted by the employer to the income tax department. The rental income will automatically be mentioned in the pre-filled income tax return of the person whose PAN number is mentioned.

Bogus HRA exemptions will be tracked automatically

Mr. A in Jhajjar Haryana is working in a Government job in Gurgaon. When his drawing and disbursing officer asked him to provide the PAN number of the landlord, for getting exemption on the HRA amount, he submitted the name and PAN number of the landlord.

In case, he is not providing the PAN number of the landlord and the amount of monthly rent paid is above Rs. 8000 (eight thousand) rupees, then the DDO will not give any tax exemption. The rent receipts are required to be submitted to the DDO and even the rent agreement or declaration is required.

The Annual Information Statement of the landlord will intimate him/her that he/she earned from the rental income and he/she has to report the same in the income tax return.

Section 194I is particularly for TDS on rent paid

As per the income tax act, the individuals who are paying monthly rent above Rs. 50 thousand, require to deduct TDS @5% at the time of paying rent to the landlord. The TDS will be deposited by the individual using his PAN number and it will automatically disclose the income of the landlord to the income tax department. In case, the landlord did not report any rental income, he/she will get a notice from the income tax department.

False Rent Paid Declaration may be tracked automatically

It is also possible that the employees mention the PAN number of another person to the employer in the self-declaration. It is also possible that the employees are giving fake rental receipts to the employer. The bogus declaration of the HRA with PAN number will show the rental income in the AIS of a genuine person. The genuine person may submit feedback on AIS citing the amount mentioned in the pre-filled income tax return or AIS is incorrect. In such a case, the false rent paid declaration will be tracked automatically.  

 *Copyright © 2021 Dr. Lalit Kumar. All rights reserved. 

All Intellectual Property rights including Copyright etc. are reserved and vested exclusively with the author or editor, Dr. Lalit Kumar. No part of the material contained in this webpage may be reproduced or transmitted in any form or by any means, electronic, technical, photocopying, recording or otherwise, or stored in any retrieval system of any nature without the written permission of the author or editor, Dr. Lalit Kumar. 

This content is written by Dr. Lalit Kumar Setia; a renowned author and trainer. He completed his Doctorate in Commerce from Kurukshetra University Kurukshetra and MBA in Information Technology from GJU, Hisar. He also wrote two books, 15 research papers, and organized more than 200 Training Courses during his working period since 2006 in Haryana Institute of Public Administration, Gurugram. The article was published on 23rd December 2021 and last updated on 23rd December 2021. The writer can be contacted on lalitkumarsetia@gmail.com 

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Exemption on HRA - House Rent Allowance

Exemption on HRA - House Rent Allowance

-Dr. Lalit Kumar Setia

In the class, the participants usually ask how much rent we can pay for getting full exemption on House Rent Allowance? If a person is paying Rent equivalent to the HRA amount, then how many portions of HRA will be taxable? Should I pay more rent than HRA for getting a full exemption on HRA? What does Income Tax Act tell regarding exemption on House Rent Allowance? Without getting confused, let us understand how to compute the amount of exemption in the received amount of House Rent Allowance.

Who can claim exemption on House Rent Allowance – HRA?

The person who are doing service or in other words, the employees get an amount for meeting their cost of rent as an allowance that is known as House Rent Allowance. Only those salaried persons who are residing in a rented house can get an exemption on House Rent Allowance. The salaried person who is not residing in a rented house, cannot get exemption on House Rent Allowance and their whole amount of HRA is taxable.

From the Financial year 2020-21, the Income Tax Department has introduced New Tax Regime. It is worth mentioning here that the persons who are opting for New Tax Regime, are not allowed to claim exemption on House Rent Allowance – HRA. Such persons even if paying rent, are not eligible to get exemption of HRA and their full HRA amount is taxable.

Need not to say, the HRA amount should be included first in the amount of Gross Salary then only the exemption is claimed on HRA.

How to compute Salaries after exemption of HRA?

There are two steps to compute the Salaries after exemption of HRA:

Step 1 – Take the amount of Salaries including HRA

Step 2 – Subtract the amount of exempted HRA

How much amount should be subtracted/How much HRA is exempt?

There are three figures which are compared and at least of the figures is exempt.

a. Amount of HRA received and included in the Gross Amount of Salaries

b. Rent Paid – 10% of Salary*

c. 40% of Salary* or 50% of Salary*

*Here Salary means Basic Salary and Dearness Allowance.

It is found in the classroom inquiries that most of the employees usually takes a percentage of Basic Salary than Basic Salary + Dearness Allowance. That is wrong.

How much amount a person can pay as Rent to claim full exemption on House Rent Allowance?

It is known that the amount of HRA is exempt at least of the three figures, one is HRA received, second is Rent Paid – 10% of Salary, and third 40% or 50% of the Salary.

The full exemption can be up to the amount of HRA received. In most of cases, Rent Paid – 10% of Salary is the amount of exemption. If we took it as a parameter to decide the amount of full exemption on HRA, then the following amount can be paid as rent:

HRA Received = Rent Paid – 10% of Salary

Then, Rent Paid = HRA Received + 10% of Salary

Let us take an example: 

Suppose Basic Salary is Rs. 50000, DA is Rs. 8000 and HRA is 10% i.e. Rs. 5000. The person is paying Rs. 6000 as rent.

Then the exempt HRA will be at least of the following:  

a. Rs. 5000 HRA Received   

b. Rent Paid Rs. 6000 – 10% of (Basic Salary and DA)

= Rs. 6000 – 10% of (50000 + 8000)

= Rs. 6000 – Rs. 5800 = Rs. 200.

c. 40% of Salary

= 40% of (50000 + 8000)

= 50% of 58000

= Rs. 29000.

a. Rs. 5000, b. Rs. 200, c. Rs. 29000.

It means Rs. 200 will be exempt and the remaining will be taxable.

How much rent can be paid in this case to get the full exemption?

Rent Paid for full exemption = HRA Received + 10% of Salary

= Rs. 5000 + 10% of (Rs. 50000 + 8000)

= Rs. 5000 + Rs. 5800

=Rs. 10800. 

*Copyright © 2021 Dr. Lalit Kumar. All rights reserved.

This article is written by Dr. Lalit Kumar Setia; a renowned author and trainer. He completed his Doctorate in Commerce from Kurukshetra University Kurukshetra and MBA in Information Technology from GJU, Hisar. He also wrote two books, 15 research papers, and organized more than 200 Training Courses during his working period since 2006 in Haryana Institute of Public Administration, Gurugram. The article was published on 31^st August 2021 and last updated on 4^th September 2021. The writer can be contacted on lalitkumarsetia@gmail.com 

Next Articles on Income Tax:

https://drlalitsetia.blogspot.com/2021/08/tds-on-payment-made-to-government.html

and

https://drlalitsetia.blogspot.com/2021/07/tan-for-deductors.html