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Income Tax department puts HRA exemption under scanner
October, 23rd 2013

As if the additional information required in tax returns was not enough, there's more bad news for tax evaders. Salaried taxpayers who claim HRA exemption will now have to report their landlord's PAN if the total rent in a year exceeds Rs 1 lakh. "In case the landlord does not have a PAN, he must submit a declaration to this effect from the landlord along with the name and address of the landlord should be filed by the employee," says a circular issued by the Central Board of Direct Taxes last week.

Till now, if the total rent paid was less than Rs 15,000 a month, there was no need to submit the landlord's PAN details. The new rule effectively reduces this limit to Rs 8,333 a month.

This is being seen as an attempt to plug tax evasion by salaried professionals who submit fake rent receipts to maximize their HRA exemption. But even honest taxpayers will have to suffer the collateral damage. "This will create problems for many employees as landlords are generally reluctant to provide PAN on rent receipt to tenants," says Vineet Agarwal, director KPMG.

The CBDT circular has also sounded another warning. Under section 10(13A), salaried employees who get HRA up to Rs 3,000 per month are not required to produce rent receipts. "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 deems fit for the purpose of satisfying himself that the employee has incurred actual expenditure on payment of rent," the circular clarifies.

Gross direct tax collections between April and September 2013 touched Rs 3.01 lakh crore, a rise of 10.7 per cent over the Rs 2.72 lakh crore collected in the corresponding period of the previous fiscal. But the government had fixed a 19 per cent growth target for direct tax collection. In the first six months of the fiscal, barely 45 per cent of the total direct tax collection target of Rs 6.72 lakh crore has been achieved.

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