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Rent receipts are not enough for HRA claim


You need to have housing rent agreement and proof of money paid

When submitting house rent allowance (HRA) receipts, claiming you pay rent to a close relative like parents, siblings or spouse, ensure you have supporting documents to substantiate it.

A recent Income Tax Appellate Tribunal (ITAT), Mumbai, judgment has opened a can of worms. A taxpayer claimed Rs 2.52 lakh HRA stating she gives rent to her mother. When supporting documents such as rent agreement and bank statement were sought, she could not give any and lost the case.“An individual needs to satisfy only two conditions when claiming HRA. One, he is actually occupying the property.Two, the landlord actually receives the rent,” says Suresh Surana, founder, RSM Astute Consulting Group.

So, ensure you have a notarised leave-and-licence agreement. It also makes sense to inform the society. And, there should be a record for transfer of funds and therefore, use a banking channel to pay money to the property owner. If you pay in cash, ATM withdrawals should reflect that.

In the case mentioned above, the income tax department even checked details such as who pays the electricity and water bills. “The assessing officer would not usually ask for such information. But, in this case, the assessee wasn’t able to establish her claim and therefore further details were sought. Apart from the agreement and money trail, if the recipient files tax returns and declares the rent received, it would further strengthen your case,” says Naveen Wadhwa of Taxmann.com. If you pay rent to your parents, whose income is not taxable, it would still be a good idea that they file returns and declare the rental income. They also get 30 per cent deduction towards maintenance of the property.

Exaggerating the rental can cause problems. Surana says the rent should reflect ongoing rates in the area. With the tax department introducing Form 12BB last financial year, employers could also be made responsible for wrong submissions.

While the ITAT Mumbai case was selected in a random scrutiny, the same can happen to you. Every year, the tax department pick-up around three per cent of the returns for scrutiny, based on certain triggers such as income above a particular threshold, a major Enter into a leave and licence agreement Inform housing society of tenancy, if required Use banking channel transaction shown in the returns and so on. The assessment is made under section 143(3) of the Income Tax Act,where the assessee is asked to substantiate the income, expenses, deductions, losses, exemptions, etc, claimed in the return by producing relevant evidence.

13TH APRIL,2017,BUSINESS STANDARD,NEW-DELHI

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