Using PAN Card for HRA Exemption
When submitting claims for house rent allowances (HRA), the Indian government has mandated that permanent account number (PAN) card information be provided. To file these forms, which are required if the annual rent paid exceeds INR 1,00,000, a PAN card is now required.
On behalf of the Income Tax Department, the Central Board of Direct Taxes (CBDT) published a circular outlining this new obligation. All renters must now provide their landlord’s PAN card for tax exemption purposes. If you don’t already have one, you should apply immediately because a PAN card is required for HRA exemption.
In this blog, we’ll look more closely at the procedures for submitting HRA exemptions and why having a PAN number is necessary.
How Does the Government Enforce the New HRA Law?
According to the new rule, to be eligible for tax deductions, each employee who pays more than Rs. 1,00,000 in rent in a calendar year must provide their PAN information. The person must submit a tax exemption claim form, a PAN declaration form, and information about their landlord’s PAN.
The following information must be included on the PAN card for the HRA exemption declaration, which must be printed on an A4-sized sheet:
- A commitment from the landlord
- Home or property address
- Rent payment amount
- Information on the landlord, including a PAN card, name, and address
- Landlord’s signature
Causes of the HRA Legislation Change
Without even providing the landlord’s PAN information, the government decreased the number of HRA exemptions employees received. The following justifications justify the new law’s adoption:
- Employees provided false rent receipts to receive HRA exemptions
Employees submitting fictitious receipts that exceed the rent they are paying. Numerous incidents have occurred where employees have claimed HRA exemption by submitting fictitious rent receipts. The number of HRA exemptions rises as an employee’s pay does. Some workers try to claim the HRA exemption to avoid paying taxes on the amount, even though they do not pay rent.
- Landlords who do not show rental income and avoid paying tax on the same
The government learned that many people who rent their property and receive rental income do not pay taxes. The government made it mandatory for all tenants to include the PAN details of the landlord in the HRA exemption claim form to ensure that such a person discloses rent on the same. It is a tool to determine whether the landlord is declaring rental income on their tax returns.
What is the HRA Allowance?
The HRA is a portion of an employee’s pay to cover up to a predetermined percentage of housing expenses. The government does not anticipate the employees paying tax on this sum because they would be using it for lodging, so they can claim a tax exemption for the HRA amount.
The following amounts are eligible for HRA exemption under the current rules:
- Regarding the actual HRA awarded
- Rent payments that equal more than 10% of the employee’s total pay
- Employees living in Mumbai, Delhi, Kolkata, or Chennai may receive up to 50% of their income. The figure for other cities is 40%.
If the landlord does not have one, the employee must provide a certification from the landlord saying that the landlord does not have a PAN card.
The employee can write to the Income Tax department and request the landlord’s PAN card information (by supplying information relating to the reason and the landlord’s personal data) if the landlord refuses to provide the information or sign the declaration.
Eligibility for a Tax Benefit on HRA
Only salaried people who get HRA as part of their pay and live in rental housing are eligible for the HRA exemption. Professionals who work for themselves are not eligible for the HRA tax benefit.
Amount of exemption
The smallest of the following amounts will be the amount of the deduction:
- The HRA received
- The basic wage plus dearness allowance (DA) for employees in metropolitan regions is 50%; for those from non-metropolitan areas, it is 40%.
- The actual rent paid is less than 10% of your income.
Documents required
- The previous months’ rent receipts
- Rent contract with the home’s owner
- The employee must obtain a copy of the landlord’s PAN and provide it to their employer if the rent exceeds Rs. 1,000,000 annually.
How to Calculate HRA?
The three criteria on which HRA is calculated are listed below. The lowest of the three conditions listed for deduction is used to compute HRA.
- The HRA amount that the employer has received
- Actual rent paid less than 10% of base pay
- If the employee lives in a metro area, the HRA is 50%; otherwise, it is 40%.
An Example of How to Calculate the HRA Exemption
After properly illustrating, let’s discuss how the HRA exemption is calculated.
For instance, Rakesh, who resides in Delhi, makes a monthly base income of Rs. 50,000. Although the company pays an HRA component of Rs. 25,000, Rakesh pays Rs. 12,000 in rent. Do the HRA exemption calculation.
To solve the problem, we have to look at the factors affecting HRA calculation:
Actual HRA received: (Rs. 50,000*12) = Rs. 6,00,000
Actual rent paid: (Rs. 12,000*12) – 10% of salary [(Rs. 50,000*12)*10%] = Rs. 84,000
50% of the basic salary [(Rs. 50,000*12)*50%] = Rs. 25,000
The amount to be exempt for Rakesh is Rs. 84,000 since, according to the computation mentioned earlier, it is determined that it is the least of the eligible criteria.
Additionally, the government discovered that some property owners who rent out their houses were not filing their tax returns or paying any taxes on their rental revenue. Therefore, The government has made it essential to include the landlord’s PAN numbers on the tenant’s tax forms to verify the landlord’s income to nudge such landlords.
If you rent a residence and pay more than Rs. 8,333 per month, remember to have the landlord’s PAN, or you risk losing the HRA exemption. An annual rent of Rs. 1,00,000 works out to Rs. 8,333 monthly.
The landlord must be willing to provide you with a statement if they do not have a PAN. This must be done before you move in to avoid the headache of chasing down your landlord for a PAN when it comes time to file your taxes.
Remember that the requirement to produce rent receipts does not apply to paid workers receiving HRA up to Rs. 3,000 per month. However, we strongly advise that you save those for your records. This is stated in CBDT Circular No. 8/2013, dated October 10, 2013, and CBDT Circular No. 20/2015, issued December 2, 2015.
When must I disclose the PAN details of my landlord?
It is required to notify the I-T Department with the landlord’s PAN when filing an income tax return and seeking an HRA exemption. Salary workers who pay rent over Rs. 1,000,000 are allowed to obtain the landlord’s PAN.
My landlord is not a PAN holder. How do I deduct HRA from my taxes?
Even if the landlord has no PAN, the tenant may still deduct HRA from their taxes. Since it is unnecessary to include the landlord’s PAN when submitting tax returns, individuals have the option to do so. Additionally, a person needs to preserve a record of their rent receipts, rental agreement, and other documents in case there is any disagreement with the authority or their employment.
If the landlord’s PAN exceeds Rs. 8,333, it must be submitted
According to a recent announcement from the Income Tax Department, all renters who pay more than Rs. 1,000,000 in rent annually must compulsorily include the landlord’s PAN in their income tax return. This discourages landlords from filing false rental income on their tax returns.
Conclusion
The Indian government has mandated that employees provide PAN card information to submit an HRA claim return. Since the Income Tax Department has established a circular via CBDT, it is necessary to notify the landlord’s PAN to the authority to claim the exemption when the yearly rent paid is greater than Rs. 1,00,000. Therefore, it is essential for everyone who earns income to have a PAN card to qualify for HRA exemption.
The Chennai-based Kanakkupillai.com is another resource for information on using a PAN card to qualify for the HRA exemption. With the help of the HRA calculator provided by Kanakkupillai, you can take charge of your expenses. You could use their HRA calculator to get the most out of your money.
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