PAN Card for HRA Exemption

1. On the actual HRA received.
2. Balance of rent paid over 10% of the employee’s total salary.
3. Up to 50% of the salary if the employee resides in Mumbai, Delhi, Kolkata or Chennai. The percentage is 40% for other cities.

Change in Tax Laws - PAN Card of Landlord for HRA Exemption

According to an earlier notification, the landlord’s PAN Card details were to be mentioned in the form when filing a tax exemption for HRA if the annual figure was above ₹1.8 lakh. 

However, in 2013, the government released a new circular stating that PAN details had to be mentioned for HRS exemptions for amounts above ₹1 lakh.

Reason for Change in Law

The government reduced the figure that employees could file HRA exemptions for, without their landlord’s PAN details, in 2013. The reason for this is listed below:

Employees Submitting Fake Rent Receipts in Order to Claim Exemption

There have been cases where employees submit fake rent receipts in order to claim the HRA exemption. As the exemption figure rises with the employee’s salary, employees who do not pay rent, too, attempt to claim the HRA exemption to avoid paying tax on the amount.

There are also cases where employees submit fake receipts that are higher than the amount they actually pay as rent.

By including the landlord’s PAN Card details for HRA exemption claims that total over Rs.1 lakh per annum, the government will be able to ascertain if the employee is actually paying the amount in question.

Landlords Not Paying Tax on Rental Income

The government has found that a number of individuals who lease properties and collect rent do not pay tax or declare this income in their tax return. As a way to ensure that individuals declare this income, the government has made it mandatory for renters to include the PAN details of the landlord in exemption claim form, so they can check if the landlord is declaring the rent as income when filing tax returns.

New Law Perquisites

As per the law in force, all employees who declare HRA of above ₹1 lakh a year will be required to submit their landlord’s PAN details when claiming exemption.

The employee is required to submit a form, known as the PAN Card Declaration from Landlord along with the tax exemption claim form. The PAN Card Declaration from Landlord is to be printed on A4 size blank paper and is to include the following:

1. An undertaking from the landlord stating his/her name.
2. Confirming that the property has been given on rent to the employee.
3. Address of the property given on rent.
4. Amount the employee is paying as rent.
5. The landlord’s PAN Card number.
6. The landlord’s name and address.
7. Landlord’s signature.

In case the landlord does not have a PAN Card, the employee is to submit a declaration by the landlord stating he/she does not possess a PAN Card.

In the case of landlords who refuse to provide PAN Card details or sign the declaration, the employee can write to the Income Tax department and request for the landlord’s PAN Card information (by providing information relating to the reason and the landlord’s personal details).

Penalty for Non-Submission of Documents

If the employee claims HRA for amounts above₹1 lakh without submitting the required documents and declaration, the employee will not receive the tax exemption. The HRA amount will be clubbed with the employee’s salary and taxed according to relevant tax slab.

Tax Deductions on House Rent Allowance (HRA)

The House Rent Allowance (HRA) is given by an employer to his/her employees to meet rental expenses. The HRA is taxed under the head 'Income from Salaries'. The HRA is designed to give the employee tax benefits for meeting accommodation expenses. The HRA is given only to salaried employees, self-employed individuals may not claim for HRA.

The HRA is regulated by Section 10(13A) of the Income Tax Act. A part of the HRA is exempt from taxes through provisions in Section 10(13A). The taxable income of the individual is determined by deducting the HRA exemption from the total income of the individual. The HRA is fully taxable if the employee is not staying in a rented accommodation.

Eligibility for Tax Benefit on HRA

The HRA exemption is only applicable to salaried individuals who have HRA as a component of their salary and are residing in a rented accommodation. Self-employed professionals are not eligible for the tax benefit on HRA.

1. The amount of deduction available will be the minimum of the following amounts:
2. The actual HRA received
3. 50% of the basic salary plus Dearness Allowance (DA) for employees in metropolitan areas and 40% of the same for individuals from non-metropolitan areas
4. Actual rent paid less 10% of the salary

Documents Required

1. Rent receipts for the preceding months
2. Rent agreement with the owner of the house
3. If the rent exceeds ₹1,00,000 annually the employee should obtain a copy of the landlord's PAN and submit it to his/her employer

Special Scenarios

• Rent being paid to family membersThe person claiming the tax benefit should not own the premises being rented out. If an individual is paying rent to his/her parents, he/she may claim a tax deduction on HRA. But, the assessee may not claim a deduction of HRA is he/she is paying rent to his/her spouse. Due to the nature of a marital relationship it is considered that the individual will be renting the property out with his/her spouse.
• Employee is a property owner, but lives in a different city An individual can avail tax benefits for both 'interest paid on home loan' and well as 'principal amount paid for home loan' and HRA, in case he/she is living in a rented accommodation.

Employees Paying Rent But Not Receiving HRA (Section 80GG)

Some employees do not receive HRA and self-employed individuals may not claim for a tax deduction on HRA. Section 80(GG) of the Income Tax Act allows for deductions under these conditions.

Amount of Exemption

Section 80(GG) allows for the least of the following to be exempt from tax:

1. Rent paid over 10% of the total income of the employee
2. 25% of the total income
3. Rs.5,000 per month

The total income for deductions under Section 80(GG) is calculated by deducting the long term capital gains, the short term capital for which the Securities Transaction Tax (STT) has been paid and deductions under Section 8(C) and 80(U) from the gross total income of the individual.

Criteria

1. The individual, the spouse of the individual, the minor child or the Hindu Undivided Family (HUF) should not own any accommodation where the assessee resides.
2. If the individual or the HUF owns any property from which rent is collected, they are not eligible for deductions.

An individual who is claiming for deductions on interest of home loan or principal amount of home loan paid or HRA may not claim for deductions under Section 80(GG).

How to Claim HRA When Living with Parents?

The following are the points that should be considered while claiming HRA when living with parents:

1. Rented accommodation should be availed by the individual
2. The house should be owned by the parent of the individual

1. Rent should be paid by the individual to the owner of the property and to both parents in case property is owned jointly
2. Clear documentation should be done while preparing the rent agreement
3. To avoid discrepancies while filing tax returns, obtain dully signed rent receipt from your parents 
4. While filing tax returns, parents must show the receival of rental incomes as it is taxable

How is HRA Calculated?

HRA is calculated considering the lowest of the following three conditions: 

1. Difference between actual rent paid and 10% of the basic salary 

1. The amount received by the employer as HRA 
2. If the employee resides in metro or non-metro cities, then HRA would be 50% or 40%, respectively

Here is How HRA calculated:

Mr. A receives basic salary ₹40,000 every month and resides in Delhi (metro city)

Rent paid every month is ₹10,000

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