House Rent Allowance Exemption : LANDLORD's PAN MANDATORY IF RENT PAID OVER Rs. 1 LAKH PER ANNUM

Rented house and claiming House rent allowance exemption under section 10 (13A ) of Income Tax Act.

Income Tax department has recently released CIRCULAR NO : 08 / 2013 F.No. 275/192/2013-IT(B) dated 10.10.2013 vide which ,it has been stated that  an employee who is claiming House rent exemption (HRA) and if annual rent paid by the employee exceeds Rs 1 lakh per annum, it is mandatory for the employee to report PAN of the landlord to the employer.

Earlier the submission of  Pan of landlord was mandatory if rent paid was 1,80.000 per annum with effect from financial year 2011-12 , now the limit has been significantly reduced to Rs. 1 lakh only with effect from financial year 2013-14.

This will be a problem for many employees as land lord generally reluctant to provide PAN on rent receipt  or  / otherwise to tenant.

Abstract of the relevant provisions from circular 8/2013 dated 10.10.13 is reproduced hereunder.

Further if annual rent paid by the employee exceeds Rs.1 lakh per annum, it is mandatory for the employee to report PAN of the landlord to the employer.

In case the landlord does not have a PAN, a declaration to this effect from the landlord along with the name and address of the landlord should be filed by the employee.

Further as given above, circular specified that in case the landlord does not have a pan , employee can give a declaration to this effect along with name and address of the landlord to his / her employer.

So all employees / employers / DDO (drawing and disbursing officer) should note down  this amendment and make sure the compliance of it while finalising the calculation and deduction of tax on payment of salary.

How to calculate  HRA exemption amount

According to Rule 2A of the Rules, the quantum of exemption allowable on account of grant of special allowance to meet expenditure on payment of rent shall be the least of the following:

 **  The actual amount of such allowance received by the assessee in respect of the relevant period i. e. the period during which the accommodation was occupied by the assesse during the financial year; or

  

**  The actual expenditure incurred in payment of rent in excess of 1 / 10 of the salary due for the relevant period; or

**      Third is

        Where such accommodation is situated in Bombay, Calcutta, Delhi or Chennai, 50 % of the salary due to the employee for the relevant period; or

        Where such accommodation is situated in any other places, 40 % of the salary due to the employee for the relevant period

For this purpose, "Salary" includes dearness allowance, if the terms of employment so provide, but excludes all other allowances and perquisites.

This calculation is be done for a all spans of period under which Salary, station (Metro or /  non metro),Rent paid, Rent received remain the same.

To claim the House rent exemption other points should also kept in mind

Under section 10(13A) of the Act, any special allowance specifically granted to an assessee by his / her employer to meet expenditure incurred on payment of rent (by whatever name called) in respect of residential accommodation occupied by the assessee is exempt from Income tax to the extent as may be prescribed, having regard to the area or place in which such accommodation is situated and other relevant considerations.

 

It has to be noted that only the expenditure actually incurred on payment of rent in respect of residential accommodation occupied by the assessee subject to the limits laid down in Rule 2A, qualifies for exemption from income tax. Thus, house rent allowance granted to an employee who is residing in a house / flat owned by him/her is not exempt from income-tax.

The disbursing authorities should satisfy themselves in this regard by insisting on production of evidence of actual payment of rent before excluding the House Rent Allowance or any portion thereof from the total income of the employee.

Though incurring actual expenditure on payment of rent is a pre-requisite for claiming deduction under section 10 (13A), it has been decided as an administrative measure that salaried employees drawing HRA upto Rs.3,000 per month will be exempted from production of rent receipt. It may, however, be noted that this concession is only for the purpose of tax-deduction at source, and, in the regular assessment of the employee, the Assessing Officer will be free to make such enquiry as he / she deems fit for the purpose of satisfying himself that the employee has incurred actual expenditure on payment of rent.

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