“HRA EXEMPTION & PAN SUBMISSION OF THE LANDLORD ”

TAX TALK-11.08.2014-THE HITAVADA

TAX TALK

CA. NARESH JAKHOTIA

Chartered Accountant

“HRA EXEMPTION & PAN SUBMISSION OF THE LANDLORD ”

Query 1]

I am an employee in a PSU residing at Bilaspur (CG ). I receive HRA from my Company and I live in a rented premises. But I could not submit the rent receipts to my Company for the Financial Year 2013 - 14, so the Company deducted and deposited the tax without considering the provisions of HRA exemptions.

My query is - 

1.      Whether can I claim the HRA exemptions while filing the return online? If yes, will I still require the rent receipts from the landlord?

2.      My actual rent does not exceed Rs. 1,00,000/- p.a. Will I still require the PAN of the landlord in this case?

3.      My Basic Salary & DA keep on changing every month, so will I have to take the Basic Salary & DA for every month as per the pay slip and do the calculations for HRA?

I had purchased a house in 2008 under the Self Financing Scheme from the Housing Board for which I had availed the facility of HB loan from my Company and against which the Principal and the Interest amount is being deducted from my Salary. But since I have not received any Completion Certificate from the Housing Board till date (as the house is still not completed and I have not received the possession till date), I could not submit the same to my Company. My queries are: 

i.                    As I could not submit the required papers to the Company, won't I be able to claim the Pre - Construction period Interest as the 3 year period has also been lapsed?

ii.                 Can I claim the deduction U/s 24 for Housing Interest of Rs. 34,897/- for the F.Y. 2013-14 while filing my e-return? If not, then from when can I claim the deduction U/s 24? I have not claimed any deduction regarding this till now in any year. I am eagerly waiting for your solution to my problem.  [Meena Mohan-minaraju26@gmail.com]

Opinion:

Employees in receipt of House Rent Allowance (HRA) from the employer are eligible for exemption if they are staying in a rented accommodation & paying the rent. While working out deduction of tax at source (TDS) of employee, the disbursing authorities (or employer) should satisfy themselves about the rent payment by insisting the production of evidence of actual payment of rent before granting exemption towards HRA or any portion thereof from the total income. Income Tax Department has further tightened its focus on bogus HRA exemption claimed by salaried employees in income tax returns & so now employees have to furnish the PAN of the landlord if the rent payment exceeds Rs. 1 Lacs p.a. [Circular No. 8/2013 Dated 10.10.2013 issued by CBDT]. 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.

[Though  incurring actual expenditure on payment of rent is a pre-requisite for granting exemption under  section  10(13A) by the employer,  as  an  administrative  measure, salaried employees drawing house rent allowance  up to Rs. 3,000/-  per  month are exempted from production  of rent  receipt to the employer/ disbursing authorities . 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.] 

With above minor background, it may be noted that

1.      Even if the employer has not considered deduction towards rent payment u/s 10(13A), employee can claim the same while filing income tax return. The receipt is not required for uploading the return. However, it CAN be demanded subsequently by the Assessing Officer.

2.      PAN of the landlord, if rent payment exceeds Rs. 1 Lacs, is required by the employer to grant deduction towards HRA while working out Tax to be deducted (TDS) from the salary income of the employee. If the rent payment is not exceeding Rs. 1 Lacs, furnishing of PAN is not mandatory and employer could grant deduction merely on the basis of rent receipt / rent agreement of the landlord. It may be noted that even if the deduction towards HRA is not considered by employer due to any reason whatsoever, employee could claim the same while filing return of income if all other eligible condition of deduction are satisfied.

3.      Monthly Basic salary & DA would be aggregated to arrive at yearly figure and then deduction towards HRA would be worked out.

As far as interest towards pre-construction period is concerned, it may be noted that interest paid during the period of construction of house property is not deductible in the year of interest payment. Interest in respect of pre-construction period is deductible in five equal annual installments commencing from the year in which the construction is completed. For this purpose “pre-construction period” means the period commencing on the date of borrowing and ending on March 31^st immediately prior to the date of completion of construction /acquisition.

There is one more penal consequence in case the house property is not completed within a period of 3 years. In such case, deduction towards interest on borrowed capital is also restricted to Rs. 30,000/- only & not Rs. 1.50 Lacs (now enhanced to Rs. 2 Lacs from the FY 2014-15 onwards) otherwise available in case of self occupied house property.

In your specific case also, deduction towards pre-construction period would be eligible for deduction only after the construction of the house property. Without completion of the construction of house property, deduction would not be admissible.