ALMOST all employees have house rent allowance (HRA) as one of their salary components as it provides a significant tax benefit.
As per CBDT circular issued two weeks ago, employees are mandatorily required to provide the permanent account number of their landlord to the employer if annual rent is above Rs 1,00,000.
This limit was Rs 1,80,000 in FY12 and Rs 2,00,000 in FY13. Hence, from this financial year (FY14), employees paying rent above Rs 1,00,000 annually are also required to obtain the permanent account number of the landlord and provide it to their employers.
Landlords receiving money from tenants were already required to report this as house property in come in the tax return. Quoting of tenants permanent account number is optional for them.
HRA benefit is computed by taking the lowest of the follow ing under the Income-tax Act, 1961 (`IT Act'): Actual HRA received; Rent paid minus 10 per cent of salary; 50 per cent of salary for individuals living in Delhi, Mumbai, Kolkata or Chennai and 40 per cent of salary for individuals residing in any other city.
And salary for the above is computed by taking the basic salary, dear ness allowance and com mission based on fixed turnover.
It's important to note that in a recent case of Ba jrang Prasad Ramdharani vs Assistant CIT, rent was paid by assessee as tenant to his wife who was land lord and both were living together. It was debated whether HRA benefit is her HRA benefit is available or not.
The Ahmedabad ITAT ruled that since the house was owned by the wife of assessee and assessee had paid rent to her through bank transfer, proper rent receipts, it was a genuine transac tion. Hence, HRA benefit should be allowed. While this is a favourable judg ment, one should look at each specific case before claiming this exemption as there should be no eva sion of taxes.
As per the circular, in dividuals who are paying rent up to Rs 3,000 per month need not provide any documents. The ex emption is provided to reduce administrative difficulties for the employer.
However, employees may be required to substantiate their case if the tax officer raises any queries.
While claiming HRA benefit, an employee is required to provide certain documents to the employer like rent receipts, copy of lease agreement, etc. These can vary from employer to employer. With the advent of these changes, now landlord's permanent account number will also be mandatory.
This amendment of providing the permanent account number is to check the authenticity of HRA benefit and unearth unaccounted money, if any. However, this may create problems for some employees as landlords are generally reluctant to provide their permanent account numbers to their tenants.
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