No more fake rent receipts for claiming deduction for house rent allowance

You might find yourself in trouble soon if who have been using the fake rent receipts for saving income tax. The department might soon ask you to provide proofs for checking whether you are really staying in a rented accommodation. In this new scheme of things, the tax officials might soon deny the deduction for house rent allowance where the HRA (house rent allowance) is claimed by any employee with the help of fabricated bills.

How Deduction for House Rent Allowance is generally being claimed?

A salaried employee who receives HRA (house rent allowance) from his employer was able to escape from paying tax on the HRA component of his salary by producing fake rent receipts.
However, as per a tribunal ruling recently, an assessing officer could now ask for proofs such as a letter to housing co-operative society notifying them about your tenancy, leave and license agreement, water bill, electricity bill, etc. for allowing a salaried employee to claim the tax benefits of HRA.

The Income Tax Appellate Tribunal (ITAT) ruling has provided the criteria for the AOs for considering the claim of the salaried employee and if required ask for justification. It would put the burden on the salaried employees for following the rules to avail such allowance.

This Ruling on deduction of House Rent Allowance is a part of Drive to check Tax Evasion

The ruling comes just after the decision of the Government to limit the loss on the property which is purchased with the help of borrowed funds. As of now, any person who pays an interest of, for instance, INR 4 lakh on the loan which he took for buying the said property and earning INR 2 lakh as rental income could report this difference of INR 2 lakh as the loss from house property and could set it off the same against his income from salary for paying lower tax.

In the Union budget 2017, it was provided that such loss for an individual cannot exceed INR 2 lakh.  Moreover, the Finance Minister has also proposed that those claiming the HRA (House Rent Allowance) more than INR 50,000 every month will now be required to deduct TDS at the rate of 5%.

From the perspective of the Government this amendment will make sure that the revenue leakages with respect to rental income in plugged. This would also affect the people who claim deduction for HRA falsely quoting the wrong PAN (Permanent Account Number) of the landlords. Quoting the PAN of the landlord was made mandatory if rent paid for the entire year exceeds INR 1 lakh.

Also Read- Taxability of House Rent Allowance and deduction u/s 80GG