You are on page 1of 3

How To Avoid Disallowance Of HRA Exemption NDTV Profit http://profit.ndtv.

com/news/tax/article-how-to-avoid-disallowance-of-hra-exemption-1679977

Pro t Home Live TV Latest Markets Buy Or Sell Earnings Money Corporate Economy Start-Ups Industries Lifestyle Video
home

SENSEX 29788.35 NIFTY 9237.00


MARKET INDICATORS
Petrol Pumps MARKET DASHBOARD Site
212.61 (0.72%) 55.55 (0.61%)
AS ON 11 APR, Sundays
Threaten 2017, 03:58 PM
Off, 9-To-6 On

How To Avoid Disallowance Of HRA Exemption


Other Days

The Income Tax Department may disallow fake HRA exemptions on the basis of recently-
issued guidelines by the Mumbai ITAT (Income Tax Appellate Tribunal).
RELATED
Maneet Puri | Last Updated: April 11, 2017 15:43 (IST)
Is PPF Really Worth It?
Now, You Get 40-Year
Low Interest Rate

Credit Card, Loan


EMAIL COMMENTS
Payments Come Under
Tax Department's
Scrutiny

Central Bank Of India


Customer Wins One
Crore In Government's
Digital Payments
Scheme

Salaried class taxpayers claiming HRA exemption on the basis of fake rent receipts may face dif culties.

Now salaried class taxpayers cannot claim house rent allowance or HRA exemption on the
basis of fake rent receipts in name of their mother, father, wife or any other close relative.
The Income Tax Department may disallow fake HRA exemptions on basis of guidelines
recently issued by the Mumbai ITAT (Income Tax Appellate Tribunal). Now onwards, such
taxpayers may have to keep other documents to substantiate payment of rent to claim HRA
exemption.

HRA exemption

Many salaried class taxpayers claim exemption of house rent allowance (HRA) by
furnishing fake rent receipts - in the name of their mother, father, wife or any other close
relative - to their employer. Till now, there was no guidance available with the Income Tax
Department to deal with such cases and taxpayers rmly believed that only rent receipt was
suf cient proof to show genuineness of rental payments. Taxpayers make such sham
transactions with the sole intention of claiming HRA exemption in order to reduce tax
liability.

Problems taxpayers can face

Now, salaried class taxpayers which were claiming HRA exemption on the basis of fake rent
receipts may nd it dif cult to claim the exemption. Recently, the Mumbai ITAT issued
guidelines for income tax of cials to deal with such cases.

In a case, a woman working as senior nance and accounts executive had claimed an HRA
exemption of R 7,31,640 for Assessment Years 2009-10 to 2011-12. She also owned a 2 BHK
house, jointly owned by her with her husband.

She was showing payment of rent to her mother for residential purposes. She did not
produce any evidence except rent receipts to substantiate that there was actual hiring of
premises. Her claim was disallowed by the Assessing Of cer and the CIT(A).

1 of 3 4/11/2017 4:52 PM
How To Avoid Disallowance Of HRA Exemption NDTV Profit http://profit.ndtv.com/news/tax/article-how-to-avoid-disallowance-of-hra-exemption-1679977

Pro t Home Live TV Latest Markets Buy Or Sell Earnings Money Corporate Economy Start-Ups Industries Lifestyle Video
home
page rent receipt. The taxpayer could not produce any evidence to substantiate rental payments
such as leave and license agreement, letter to society intimating about tenancy, payment
through bank, electricity bill and water bill payments etc. It also said "the taxpayer was
staying in her own 8at with her husband which is emanating from ration card, bank
statement and return of income. The mother of assessee also did not le any income-tax
Petrol Pumps return since last six assessment years and said rental income was not brought to tax in the
Threaten Sundays
Off, 9-To-6 On hands of mother of assesse."
Other Days
Procedure to follow

You should have evidence of your actual stay at residential house of your mother, father,
RELATED
wife etc. (viz. close relative). You can enter into a rent agreement for this purpose. You may
Is PPF Really Worth It? also keep a copy of any other correspondence through email wherein there is consent of
Now, You Get 40-Year your relative to let out the house in your favour.
Low Interest Rate

Credit Card, Loan It is dif cult to substantiate rental payments made in cash. So, it's better to pay house rent
Payments Come Under
to your close relative through transfer of money in his or her bank account.
Tax Department's
Scrutiny
If you are making rental payments which will be taxable in the hands of your close relative,
Central Bank Of India
make sure that he or she les income tax return (ITR) and shows such rental receipts in that
Customer Wins One
Crore In Government's
return of income.
Digital Payments
Scheme Married women cannot claim HRA exemption by showing rental payments to their mother
when actually living with husband and daughter in another house.

It may happen that the addresses mentioned in your ration card, bank statement and return
of income do not match with the recorded address of your rented premises. In that case,
you will be in trouble as now the Income Tax Department may scrutinize such cases. Such a
probe may indicate that you are living in another house in the same city as you rented
premises.

You cannot claim HRA exemption if you have own house in the same city wherein your
rented house is situated. It is dif cult to prove the necessity of new rental house when you
already have one house at your disposal.

You can claim HRA exemption if your rented house is situated in the same city where you
work but your own house is outside that city. For example, suppose Mr A is working in Delhi
and claiming HRA exemption for rented premises the tax of cer cannot disallow such
claim if his own house in situated outside Delhi.

You will have to ensure that your rental payments do not exceed the market value of similar
property in your vicinity. Suppose you are paying a rent of around R 40,000 for a 1 BHK house
in Delhi, it clearly shows that it is a sham transaction. The income tax of cer may disallow
HRA exemption in such a case.

If you are staying in any 8at of society of your relative, make sure to intimate the secretary
of society about your tenancy.

If you are claiming tax deduction for EMI of home loan in your income tax return, do not
claim exemption of HRA. However, you can claim both the deductions simultaneously if
your own house is not in the same city in which you are working and you have taken rented
accommodation in the same city where you are working.

(Maneet Puri is Manager at Taxmann.com)

Disclaimer: The opinions expressed within this article are the personal opinions of the
author. The facts and opinions appearing in the article do not re'ect the views of NDTV
and NDTV does not assume any responsibility or liability for the same.

For latest news on Business, like us on Facebook and follow us on Twitter.

Story *rst published on: April 11, 2017 15:12 (IST)

2 of 3 4/11/2017 4:52 PM
How To Avoid Disallowance Of HRA Exemption NDTV Profit http://profit.ndtv.com/news/tax/article-how-to-avoid-disallowance-of-hra-exemption-1679977

Pro t Home Live TV Latest Markets Buy Or Sell Earnings Money Corporate Economy Start-Ups Industries Lifestyle Video
home
page
Jio Withdraws Summer Surprise Offer. What Next?

taxpayers Income Tax Department HRA exemption HRA rent receipts


Petrol Pumps
Threaten Sundays
fakeOff,
HRA exemptions
9-To-6 On
Other Days

RELATED

Is PPF Really Worth It?


Now, You Get 40-Year
Low Interest Rate
RSS NEWS ALERTS MOBILE APPS APPLE ANDROID WINDOWS FACEBOOK TWITTER GOOGLE+ LINKEDIN
Credit Card, Loan
Payments Come Under
ABOUTTax
US Department's
ARCHIVES ADVERTISE FEEDBACK DISCLAIMER INVESTOR COMPLAINT REDRESSAL OMBUDSMAN CAREERS SERVICE TERMS CHANNEL DISTRIBUTION
Scrutiny

Market Data provided by Accord Fintech. Copyright NDTV Convergence Limited 2017. All rights
Central Bank Of India
Customer Wins One
Crore In Government's
Digital Payments
Scheme

3 of 3 4/11/2017 4:52 PM