Friday, 6 June 2014

Additional details for claiming HRA

Claiming the House Rent Allowance (HRA) that is granted by the Income Tax Act has become slightly tougher in recent times for the salaried. This has meant another round of burden on this category of tax filers and hence there is a need to be careful about the manner in which they go about filing their tax returns and claiming the benefits. There has to be preparations and efforts beforehand so that there is no problem at the time of actually claiming the benefit. Knowing the requirements that are present are also important as far as the overall claim on the amounts is concerned. Here is a look at the recent changes and the manner in which the salaried should tackle this.

Manner of working
There is often a house rent allowance that is paid to the employees and which form a part of their overall salary package. This is meant to compensate them for the rent that they pay for their stay. A certain part of their rent amount spent would be available as a deduction and hence the amount would become tax free in their hands which means this would not be liable for being taxed. The employees would want the highest amount to be tax free. There is a certain procedure that they need to follow for the purpose of ensuring that the amount is tax free and this includes providing a rent receipt for the amount that they have paid as rent. One of the things that have been witnessed is that a lot of people were providing receipts that were not possible to be verified and this was resulting in a lot of income escaping the tax net. There have been specific steps that have been taken by the income tax department to ensure that the claim is actually genuine.

Providing PAN
One of the things that has been introduced was that the employee would have to provide the PAN of the landlord when the rent exceeded a certain figure per month. This was meant to ensure that for higher rents there was a genuine party at the other end and that there is no escape of income from taxation at either side of the transaction. The requirement was that if the rent was earlier more than Rs 15,000 a month then the PAN of the landlord would have to be mentioned. This was then reduced to Rs 1 lakh a year or Rs 8333 a month so the figure has become quite low and when it comes to large cities most people who pay rent would have to comply with the requirements.

Problems
This procedure to provide PAN has put a lot of the salaried people in a spot of bother as in many cases the landlords are not comfortable providing their PAN when they are giving out receipts. The other thing is that if there is no PAN then there has to be a separate declaration that gives the name and address of the landlord. This is not the end of the matter because even when the salaried now go to file their tax return they would have to undertake additional steps that would result is higher disclosure in these returns. Earlier there was just a consolidated figure that needed to be mentioned that was tax exempt but now this has to be separated and the head under which this has been claimed has to be mentioned. This would result in a situation where the HRA claimed as exempt would have to be mentioned in a separate head and hence this can be looked at closely by the tax department. This is another step by which the tax department has trained its attention on claims that might not be genuine and the salaried would do well to ensure that they comply with the various requirements.

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