Recent rulings from income tax tribunals on house rent allowance or HRA
claims have brought the tax rebate to the fore. The Mumbai tribunal in a
recent ruling said the assessing officer can now demand further proof
for allowing HRA deduction.
“The judgment of Ahmedabad tribunal and recent judgement of Mumbai
tribunal are not contradictory per se and have necessarily the similar
import. In the ruling of Ahmedabad tribunal, the person was living with
his wife and was transferring the rent amount to her bank account. As
twin requirements of occupation and actual payment were satisfied, hence
it was allowed,” said Sandeep Sehgal, director of tax and regulatory at
Ashok Maheshwary & Associates LLP.
“The Mumbai tribunal has only imposed a stringent requirement to produce
other necessary documents to prove the genuineness of the claim. Hence,
people claiming the HRA exemption for rent paid to relatives are
advised to maintain robust documentation to prove the actual payment,
actual occupation and genuineness of transaction,” he added.
HRA forms a big component of an employee’s salary. Salaried individuals
who live on rent can claim HRA to lower taxes. It is partially exempted
from taxes. However, if the individual does not live in a rented
accommodation, HRA is fully taxable. Tax experts say that after the
tribunals’ rulings, the HRA claims will be under close scrutiny from the
tax department.
Now, taxpayers who were claiming HRA exemption on the basis of fake rent
receipts may find it difficult to claim the exemption, said Maneet Puri
of Taxmann. Experts say that taxpayers, especially who pay rent to
relatives, and claim HRA benefits could face higher scrutiny.
The Taxman executive lists out some procedures to follow:
You should have evidence of your actual stay at residential house of
your mother, father, wife etc. (viz. close relative). You can enter into
a rent agreement for this purpose.
It is difficult to substantiate rental payments made in cash. So, it’s
better to pay house rent to your close relative through transfer of
money in his or her bank account.
If you are making rental payments which will be taxable in the hands of
your close relative, make sure that he or she files income tax return
(ITR) and shows such rental receipts in that return of income.
It may happen that the addresses mentioned in your ration card, bank
statement and return of income do not match with the recorded address of
your rented premises. In that case, you will be in trouble as now the
Income Tax Department may scrutinize such cases.
You will have to ensure that your rental payments do not exceed the
market value of similar property in your vicinity. The income tax
officer may disallow HRA exemption in such a case.
If you are staying in any flat of society of your relative, make sure to intimate the secretary of society about your tenancy.
Source: Profitndtv
