Salaried employees living on rent are allowed to claim deductions against the House Rent Allowance (HRA) provided by employers. For rent paid up to Rs 1 lakh, salaried employees are not required to submit their landlords’ Permanent Account Numbers (PANs). However, claiming a fake HRA deduction by showing below Rs 1 lakh rent to evade PAN submission can trigger a notice from the Income Tax Department.
According to Neeraj Agarwala, partner, Nangia Andersen India, individuals at times make incorrect HRA and home loan deduction claims in their income tax returns. Claiming both deductions wrongly can trigger a notice by the Income Tax Department.
Agarwala writes in an article that the purpose of such notice is to grant the tax department an opportunity to examine the case as to whether the taxpayer has made a legit claim or not.
What the rules say
- Taxpayers have to submit the landlord’s PAN if the annual rent paid is over Rs 1 lakh. For rent paid below Rs 1 lakh, taxpayers are not obliged to declare the landlord’s PAN.
- Income tax rules allow individuals to claim HRA as well as a deduction against home loan repayments simultaneously if the taxpayer owns a house in a different city from their workplace.
- The details of rent paid, the landlord’s PAN (if required), and the address of the rented accommodation are to be submitted to the employer for making a claim for HRA deduction.
When a notice can be triggered?
An Income Tax notice can be triggered if a salaried employee has not submitted relevant details to his/her employer but makes an HRA claim in ITR.
Further, a tax notice can be triggered if you are claiming both HRA and home loan deductions while your house and your workplace are in the same city
Agarwala writes that there has been a misuse of this provision by certain individuals, who falsely claim HRA deductions under Rs 1 lakh to evade PAN submission. In such cases, the tax department is more likely to send a notice in order to curb this practice.
Should you worry?
You will be okay if your house and workplace are located in different cities and you are claiming both HRA and home loan deductions. Further, you would be okay if you have submitted relevant details to your employer and there are no mismatches in your ITR.
In case, you are making an HRA claim below Rs 1 lakh, you should ensure that you are actually paying that amount as rent and you have no home loan in the same city. Also, just to be safe in future, you must have a proper rent agreement with the landlord to avoid any trouble in case the tax department decides to send a notice.