HRA Exemption: LandLord's Pan Mandatory if Rent Paid Over 1,00,000 Per Annum

Not a good news for salaried person, who are living in rented house and claiming House rent allowance exemption under section 10 (13A )of Income Tax Act. As per CIRCULAR NO : 08/2013 F.No. 275/192/2013-IT(B) dated 10.10.2013 Income Tax department has recently has stated that  an employee who is claiming House rent exemption (HRA) and if annual rent paid by the employee exceeds Rs 1,00,000 per annum, it is mandatory for the employee to report PAN of the landlord to the employer.

Earlier Pan of landlord was mandatory if rent paid  was 1,80,000 p.a wef financial year 2011-12 ,now the limit has been significantly reduced to 1,00,000 p.a only wef financial year 2013-14.

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 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 house rent allowance upto Rs.3000/- 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 deems fit for the purpose of satisfying himself that the employee has incurred actual expenditure on payment of rent. 

Further if annual rent paid by the employee exceeds Rs 1,00,000 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.

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:

(a) 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

(b) The actual expenditure incurred in payment of rent in excess of 1/10 of the
salary due for the relevant period; or
(i) Where such accommodation is situated in Bombay, Calcutta, Delhi or
Madras, 50% of the salary due to the employee for the relevant period; or
(ii) 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.

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