New house rent allowance exemption rule: How it will affect you

New house rent allowance exemption rule: How it will affect you

The Central Board of Direct Taxes has now made it mandatory for employees 

to submit PAN of the landlord to the employer if the annual rent exceeds Rs. 

1,00,000 per annum and such an employee is claiming House rent exemption 

(HRA) under section 10 (13A) of Income Tax Act.

Though CBDT circular, with an aim to tighten its noose around tax evaders, 

has come up with the new rule, many employees are finding it difficult to 

arrange for the new formalities while claiming their HRA exemption. In 

conversation with Reema Sharma of ZeeBiz.com Tarun Gupta, Managing 

Director, Mangla Consulting explains the details of how to go about claiming 

the HRA exemption.

HRA exemption of over Rs 8,333 a month will need the landlord`s PAN card details as per the new circular issued by Central Board of Direct Taxes (CBDT). What does the new circular mean?

As per new circular of CBDT vide its Circlular No. 08/2013 F.No. 275/192

/2013-IT(B) dated 10.10.2013 if you are a salaried and claiming HRA (House 

Rent Allowance exemption and the rent paid by you is more than Rs.1 Lakh 

per year then it is compulsory to provide PAN (Permanent Account Number) of 

your Landlord. Earlier the limit was capped Rs.15,000 per month as against 

the current limit of Rs.8,333 per month.

Can the new CBDT circular really tighten its grip around tax evaders?

This move has been taken by CBDT to consider those who are living in their 

own houses and claiming benefits of HRA. It’ll also bring those landlords 

under income tax net who have multiple tenants but don’t declare his/her 

income correctly.

The new law will be troublesome for the people whose landlords are reluctant to provide pan card details. How can these people find an alternative?

In case a landlord doesn’t have a PAN, then a declaration needs to be filed by 

the employee by declaring the name, address & details of landlord. It should 

be duly signed by landlord. In case a landlord’s rental income is assessed in 

Income Tax then he’ll not refuse to provide PAN. But in case he wants to 

evade tax by not giving PAN that cannot be allowed as per Income Tax Act. 

One has following options:a) Provide PANb) Provide Declarationc) Pay Rent 

but  do not claim exemption d) Find out a new landlord who provides PAN

There might be cases where employees pay their rent in cash and landlord 

refuses to provide any rent receipts. In order to avail tax benefits, employees 

prepare rent receipts themselves and do forge signatures. Also there might 

be cases where employees actually do not pay any rent but still prepares rent 

receipts. These all are covered under forgery cases and offences under giving 

false evidence and fabricating false evidence of IPC (Section 191 & 192). As 

per judgement by Delhi High Court in such case, an employer can also 

dismiss the employee for forging the rent receipts.

Even if an employee pays rent below Rs. 8,333 per month, he/she has to produce the rent receipts for availing deduction under HRA. In the absence of such receipts what can be done?

PAN of landlord is not necessary if assessee is paying rent below Rs.8,333/- 

per month. However, in that case it is always recommended that rent is paid 

either by cheque or bank transfer which will be a record for the assessee. 

Also, in case the Assessing Officer demands proofs, bank entries will prove to 

be a better substitute than rent receipts.

Those people who are living in a rented accommodation but paying pre-EMI for the soon-to-be possession of their new home, how can they calculate the exemption?

Those who have booked house and have taken home loans from various 

financial institution must be paying monthly EMI (Equated Monthly 

Instalments) to their respective financial institutions. They’ll get the 

deduction as per the normal category which is:a) HRA Receivedb) Rent paid 

Less 10% of Salaryc) 40% of salary (50% for Metro Cities)

However, after getting the possession, they can claim the amount paid as Pre 

EMI interest in next 5 years equally starting from the year of possession. 

Suppose A has paid

Pre EMI interest Rs.5Lac

Current Year Interest Rs.40,000

Total benefit which can be claimed under section 10B is Rs.1,40,000 instead 

of Rs.40,000. But the maximum limit of the section is Rs.1,50,000 which 

means if your exemption amount exceeds Rs.1,50,000 you can claim 

Rs.1,50,000 only (if the house is not a rent out).

Source: http://zeenews.india.com/

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