Central Board of Direct Taxes (CBDT) had issued a circular on 10th October 2013 regarding House Rent Allowance (HRA) exemption under section 10(13A) of the Income Tax Act, 1961. As per the circular, if annual rent paid by the employee exceeds Rs 100,000 per annum, it is mandatory for the employee to report Permanent Account Number (PAN) of the landlord to the employer.
Is it a new requirement?
No it is not. Requirement to report landlord’s PAN has been there since financial year 2011-12, wherein it was applicable for employees who were paying rent of more than Rs 15,000 per month. All that has happened is that this limit of rent paid for reporting of landlord’s PAN has been reduced from Rs 180,000 per annum to Rs 100,000 per annum.
What if the landlord doesn’t have PAN?
In case the landlord does not have a PAN, a “No PAN Declaration” to this effect from the landlord along with the name and address of the landlord should be filed by the employee. This declaration can be obtained on a plain A4 size paper. No specific format of the declaration has been prescribed.
Please click here to download sample NO PAN DECLARATION.
What if the landlord refuses to share PAN details?
In case the landlord refuses to share PAN details and also doesn’t provide No PAN Declaration, employee would not be able to claim HRA exemption. If you face such a situation, there isn’t much you can do other than looking for a new place to rent!
SmartPaisa Tip: Typically identity proof of both landlord and tenant is required to be included in the Rent / Leave & License Agreement. Insist on the landlord to provide copy of PAN card as proof of identity to be included in the agreement. This will ensure that PAN details of the landlord are available with you for reporting to your employer at a later date.
Why this provision?
Question arises as to why the Income Tax authorities have made claiming HRA exemption cumbersome for the salaried employees. Idea is not to harass the honest taxpayers but ensure exemption provisions are not misused. Probably this step has been taken by the tax authorities to correct the following malpractices:
- Landlords not paying tax on rental income: Quite often people do not report the rental income in their Income Tax return. Now with the PAN number of landlords available with tax authorities, it is possible to cross verify the amount reported by employee as rent paid and rental income reported by the landlord. This provision will ensure that more and more people correctly disclose their rental income while filing the IT return.
- Employees submitting fake rental receipts to claim HRA exemption: Sometimes the employees were also submitting fake rent receipts or rent receipts for higher amount than actual rent paid. Now with the landlord’s PAN available with tax authorities, these inconsistencies can be potentially detected by the tax authorities and questioned. Hence this practice will also come down.