The majority of salaried people receive House Rent Allowance (HRA) as part of their salary package. Many people claim the HRA tax exemption for living in rental housing during the fiscal year to save money on income taxes.
According to news reports, the Income Tax Department has come across an HRA fraud involving the use of fake Permanent Account Numbers (PAN). The Income Tax Department has identified 8000-10,000 high-value cases, with some involving amounts surpassing Rs 10 lakh or more.
This may result in heightened scrutiny of HRA claims, particularly high-value HRA claim amounts. Now, if you want to ensure that the tax agency accepts your legitimate HRA tax exemption when you file your income tax return (ITR), you must maintain certain documentation accessible.
A valid rental agreement:
Make sure that you and your landlord have a current rent agreement. To guarantee compliance with income tax regulations, specific conditions must be included in the rental agreement. In addition, essential information about the landlord and tenant must be included in the rental agreement. It is advisable, according to tax experts, to include the landlord’s and tenant’s PAN and Aadhaar numbers.
Rental receipts:
In addition to having a valid rent agreement, a person needs to keep track of their rent receipts. The rent receipts are proof that the salaried employee has paid the rent for the entire fiscal year. Even if rent is paid electronically through a service like net banking, the rent receipts still need to be gathered.
PAN card of landlord:
If you pay more than Rs 1 lakh in rent in a financial year and you are claiming HRA tax exemption from your employer, you are advised to provide your landlord’s PAN. If an employee does not claim the HRA tax exemption through their company, they may do so by completing an ITR under the income tax regulations.
Pay your rent through banking channels:
According to chartered accountants, rent should be paid electronically rather than in cash. The rent payment done through banking channels keeps track of the transactions. If the income tax authorities ask, the bank statement can be used to prove the rent payment.
Rent payments to family members:
Rent payments to family members are not restricted by income tax legislation. However, chartered accountants suggest that individuals create and retain the necessary documentation even if the rent is paid to a family member, or else, the income tax department may deny the HRA tax exemption. In addition, if ITR filing is required, the individual should request that the family member include the rent received as income on their tax return.
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