Role of PAN Card in HRA Exemption

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Workers are now obliged to provide PAN card information while making HRA claims returns, as per a recent government statement. In the event that the homeowner’s PAN card data surpass 1,00,000 INR annually, the government has directed that the homeowner’s PAN card information must be given on the exemption application.

This article is focused on the role played by PAN cards in HRA Exemption.

What is HRA?

The HRA is a portion of an individual’s pay that is used to pay the expense of housing, up to a particular percentage. Because the worker will be spending this money on housing, the government doesn’t really expect the individual to pay any tax on it, and the worker can seek a tax deduction for the House Rent Allowance sum. HRA exemption works in the favour of workers, as this helps them save up a considerable amount of tax.

According to the current guidelines, House Rent Allowance exemption can be requested for these amounts:

  • The actual amount received as House Rent Allowance
  • (Dearness Allowance + Basic Salary) x 50% if you are residing in a metro city i.e. Mumbai, Delhi, Chennai, or Kolkata. If not, (DA + Basic Salary) x 40%
  • The annual rent amount – 10% of (DA + Basic Salary) 

Tax Laws Update

The previous declaration required the homeowner’s PAN card data to be included in the application while requesting an HRA exemption from tax if the yearly amount exceeded 1,80,000 INR.

Nevertheless, the government issued a new circular in 2013 indicating that PAN information was required for HRA tax exemptions for sums more than 100,000 INR.

This rule does not affect the HRA exemption amount in any way. This rule just ensures the safety & legitimacy of both parties.

Reasons for the Change

There are several reasons behind the 2013 update in tax laws. They are mentioned below:

  1. There have been reports of workers submitting forged rent invoices to seek the HRA exemption. Workers who don’t even pay rent seek to use the HRA exemption from tax to prevent paying taxes on the sum because the exemption value grows with the worker’s wages. 
  2. There have also been reports of employees submitting fraudulent receipts that are greater than the sum of rent they are currently paying. The government would be able to determine if the worker is truly paying the sum in consideration by providing the homeowner’s PAN card data for HRA tax exemption applications that total more than 1,00,000 INR per year.
  3. The government has discovered that a lot of people who rent properties and charge rent don’t really pay any tax on their earnings or disclose it on their annual income tax returns. To guarantee that people disclose this revenue, the government has mandated for tenants to submit the homeowner’s PAN information in their exemption claim application, so that the government may verify to see whether the homeowner is reporting the rent as an income source when submitting income tax returns per year. The government takes all these steps only to safeguard the citizens from unnecessary legal trouble.

To know more about HRA exemption, click here: https://www.turtlemint.com/save-tax-on-house-rent-allowance/

Revised Law Requirements

According to the current rule, all workers who disclose HRA of more than Rs. 1,00,000 per year must present their homeowner’s PAN data while seeking tax exemption.

Together with the HRA tax exemption claim application, the worker must provide a document called the Landlord PAN Card Declaration. The statement must be prepared on an A4 blank sheet of paper and must contain the following information:

  • An agreement from the homeowner that includes his or her identity.
  • Verifying that the worker has been provided the residence on rent.
  • The location of the rented home.
  • Sum paid as rent by the worker.
  • The PAN card information of the homeowner.
  • Full address and name of the homeowner
  • Signed by the homeowner.

In the event that the homeowner does not own a valid PAN card, the worker must provide a statement from the homeowner saying that he or she does not own a valid PAN card.

If a homeowner refuses to submit PAN card information or endorse the statement, the worker can appeal to the Tax Department and seek the homeowner’s PAN card details by submitting data about the cause and the homeowner’s personal information.

Punishment for Failure to Submit Documents

If a worker claims HRA for sums greater than 1,00,000 INR without presenting the requisite paperwork and statement from the homeowner, the worker will not be eligible for the HRA tax exemption. The sum received by him/her as House Rent Allowance will be combined with the individual’s compensation and taxed in accordance with the applicable tax slab.

Conclusion

House rent allowance is a policy that’s been around for some years now. It allows companies to provide better perks to their employees in an effort to retain them. Adding PAN card details into the mix makes the overall process more secure and transparent for both parties involved – the worker as well as the Government. So, it’s always a good idea to comply with the rules and regulations set by the government.

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