Landlord’s PAN Mandatory for HRA Exemption: Understanding the Rule

When submitting a claim for House Rent Allowance as a tax benefit, the Indian government has mandated that PAN card information be provided. A PAN card is now mandatory for these returns if the annual rent paid exceeds Rs. 1,00,000. Through the Central Board of Direct Taxes, the Income Tax Department published a circular outlining this new rule. In order to claim tax exemption, all renters now need to present their landlord's PAN card. Since a PAN card is required for HRA exemption, you should apply for one as soon as possible if you don't already have one. We shall go into great depth about this guideline in this article.

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Table of content

What is the House Rent Allowance?

Claiming Tax Benefits for HRA

Landlord's PAN Card Mandatory to Claim HRA Exemption

Reasons for Change in PAN Submission Rules

Conclusion

Most Asked Questions

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What is the House Rent Allowance?

A portion of an employee's pay known as the House Rent Allowance, or HRA, is given to help with housing expenses up to a predetermined threshold. The employee can claim a tax exemption for the HRA amount because the government does not expect them to pay taxes on it because they would be using it for lodging. The following sums are eligible for HRA exemption under current regulations:

• On the HRA that was really received.

• The remaining rent is more than 10% of the worker's overall pay.

• If the worker lives in Chennai, Delhi, Kolkata, or Mumbai, they may receive up to 50% of their pay. For other cities, the rate is 40%.

Only salaried workers who received an HRA as part of their pay package upon joining are eligible to claim tax benefits. To be eligible for this benefit, the person must also live in a rented house or flat. The full amount of their HRA allowance will be considered taxable if they reside in their flat. Similarly, self-employed professionals' HRA is fully taxed and they are not eligible for any tax breaks or perks. Additionally, the HRA exemption and the home loan interest exemption are distinct; therefore, qualified individuals may claim both.

Claiming Tax Benefits for HRA

Only salaried workers who received an HRA as part of their pay package upon joining are eligible to claim tax benefits. To be eligible for this benefit, the person must also live in a rented house or flat. The full amount of their HRA allowance will be considered taxable if they reside in their flat. Similarly, self-employed professionals' HRA is fully taxed and they are not eligible for any tax breaks or perks. Additionally, the HRA exemption and the home loan interest exemption are distinct; therefore, qualified individuals may claim both. The following paperwork is needed to submit an HRA exemption:

• Rent agreement 

• PAN card of the landlord

• Duly authorised rent receipt 

The landlord may still be eligible for an HRA exemption even if they do not possess a PAN card. In these situations, though, they will need to substantiate that they paid the rent when they filed their taxes. After that, the IT department will compare this to the reports that the person's landlord and employer have filed. The person will be required to produce a copy of the legally binding rental agreement and a record of all rent receipts received in the event of any difference.

Landlord's PAN Card Mandatory to Claim HRA Exemption

An earlier announcement said that if the annual amount exceeded Rs. 1.8 lakh, the landlord's PAN card information had to be included in the form when requesting a tax exemption for HRA. Nonetheless, the government issued a new circular in 2013 requiring PAN information to be provided in order to qualify for HRS exemptions for sums over Rs. 1 lakh. A PAN Declaration form, a tax exemption claim form, and the landlord's PAN details must be submitted by the individual. The following details must be included on the A4-sized PAN card for the HRA exemption declaration: 

• The landlord's undertaking 

• Property/Residence Address 

• The amount of money paid for rent 

• Name, address, and PAN card number of the landlord Landlord's signature

The employee must provide a certification from the landlord certifying that the landlord does not have a PAN Card if the landlord does not have one. Employees can write to the Income Tax department and request the landlord's PAN Card information (by supplying information relevant to the reason and the landlord's personal data) if the landlord declines to sign the declaration or offer PAN Card details.

Reasons for Change in PAN Submission Rules

In 2013, the government lowered the amount for which workers could apply for HRA exemptions without providing their landlord's PAN information. The following may be the reasons for the change in rules: 

• In several instances, workers have submitted fictitious rent receipts to obtain the HRA exemption. Employees who do not pay rent also try to claim the HRA exemption in order to avoid paying tax on the amount, as the exemption figure increases with the employee's salary. 

• Employees occasionally submit fictitious receipts that exceed the amount of rent they actually pay. The government would be able to determine whether the employee is indeed paying the amount in question by incorporating the landlord's PAN Card details for HRA exemption applications that exceed Rs. 1 lakh annually.

• Many people who lease properties and collect rent have been discovered by the government to not pay taxes or report this revenue on their tax returns. The government has mandated that tenants submit the landlord's PAN information on the exemption claim form in order to verify whether the landlord is reporting the rent as income on tax returns. This is an attempt to ensure that people disclose this income.

Conclusion

You do not require your landlord's PAN if your yearly rent payment is less than Rs 1 lakh. However, you have to give your employer your landlord's PAN if the rent exceeds Rs 1 lakh annually. Tenants must pay 10% Tax Deducted at Source (TDS) on rents above Rs 6 lakh per year. Your landlord's information is required because the tax authorities can cross-check the rental income the landlord declares with the income shown on their tax returns using the landlord's PAN numbers. This makes it possible for landlords to correctly record and pay taxes on rental income.

FAQ

Q1. What is HRA allowance and how is it calculated?

In income tax, HRA stands for house rent allowance. It indicates that, in accordance with section 10(13A), the portion of the salary received for rent payment may be deducted from the taxable salary. HRA exemptions are permitted for the least of the following:

• Actual HRA received

• Actual rent paid less than 10% of salary.

• The employee's actual HRA is 40% of their pay if they work in a non-metropolitan area or 50% if they rent a home in a metro area like Chennai, Delhi, Mumbai, or Kolkata. 

Basic pay, dearness allowance, and a set percentage of commission would all be included in the aforementioned computation.

Q2. Who can claim HRA exemption?

Salaried people who receive HRA as part of their pay are eligible for tax benefits and are required to live in rental housing.

Q3. What documents are required for HRA exemption?

In order to claim the HRA exemption, the employer will need to present certain documents, like as rental agreements and rent receipts. Rent payments over Rs 1 lakh annually will necessitate the submission of the homeowner's PAN. Employers would make an HRA deduction on Form 16 based on this evidence.

Q4. When is a rent agreement required for an HRA exemption?

The rent agreement and receipt are necessary for Form 16 in order to permit the deduction by the employer prior to the end of the fiscal year.

Q5. Is a rent agreement mandatory for claiming HRA?

Yes, the rent agreement is mandatory to claim HRA. However, few employers allow these claims without rent agreements.

Q6. When is the landlord PAN mandatory for HRA exemption?

If the annual rent exceeds Rs. 1 lakh, or Rs. 8,333 per month, the landlord's PAN is required for HRA exemption.

Q7. What if your landlord doesn’t provide PAN details?

It is required that you give your employer access to your landlord's PAN if the rent exceeds Rs 1 lakh per year. Your landlord must provide you with a written declaration that includes their name and address if they do not have a PAN.

Q8. Is a rent agreement enough to claim an HRA exemption?

It is not enough to have a rent agreement to claim HRA exemption, despite what you may believe. The income tax agency claims that although a rental agreement is crucial, it is insufficient on its own. Rent receipts are essential since they attest to the fact that you have paid the agreed-upon amount. The Income Tax Department may request both documents to validate your claim, so keep them close at hand.

Q9. Can I claim HRA without a rent receipt?

Yes, if your HRA is up to Rs. 3,000 per month, you can claim it without a rent receipt; if it is more than Rs. 3,000 per month, you cannot.

Q10. Can I claim HRA without landlord PAN?

Yes, if your annual rent is less than Rs. 1 lakh, you can claim HRA without a landlord PAN. However, if the annual rent surpasses Rs. 1 lakh, PAN is required.

Q11. What is the penalty for non-submission of documents?

The employee would not be eligible for the tax exemption if they claim HRA for sums over Rs. 1 lakh without providing the necessary paperwork and declaration. Together with the employee's pay, the HRA amount will be taxed in accordance with the applicable tax slab.