Change in Tax Laws: PAN Card of Landlord for HRA Exemption

Initially, employees claiming HRA exceeding ₹1.8 lakh per annum needed to submit their landlord's PAN card details. However, a 2013 tax notification reduced this threshold to ₹1 lakh. The objective behind this revision was to curb fraudulent practices, such as

• Fake Rent Receipts: Some employees submit fake rent receipts to claim undue HRA exemptions.
• Unreported Rental Income: Landlords not declaring the rent collected as taxable income.

Under the revised rule, employees claiming HRA exemptions for rent exceeding ₹1 lakh per year must provide the PAN card details of their landlord. This requirement helps in monitoring taxable income from rentals, preventing fraud, and ensuring the landlord declares rental income in their tax filings.

How to Comply with the PAN Card Requirement for HRA Exemption

If your annual rent exceeds ₹1 lakh, follow this process to ensure compliance:

1. Form Submission: Employees must submit a PAN Card Declaration from the landlord. This declaration should be prepared on A4 paper and include the following details:

   • The landlord’s name and PAN card number.
   • The address of the rented property.
   • The rent amount paid by the employee.
   • The landlord's signature.

2. No PAN Card? If the landlord does not have a PAN card, they must provide a written declaration stating that they do not possess one. If the landlord refuses to share their PAN or provide the declaration, the employee should contact the Income Tax Department for further instructions.

3. Penalty for Non-Submission: If the required documents are not submitted, the claimed HRA exemption will be denied, and the entire HRA amount will be added to the employee's taxable salary.

Eligibility for HRA Exemption

To claim HRA exemption, an employee must meet the following conditions:

• The employee must be receiving HRA as part of their salary.
• The employee must live in rented accommodation.
• Self-employed individuals cannot claim HRA, but they may be eligible for deductions under Section 80GG.

Documents Required for HRA Exemption

To successfully claim an HRA exemption, the following documents are typically needed:

1. Rent receipts: For each month the HRA exemption is claimed.
2. Rent agreement: A rent agreement between the employee and the landlord.
3. Landlord’s PAN card: Required if the annual rent exceeds ₹1 lakh.

Special Scenarios for HRA Exemption

1. Rent Paid to Family Members: Rent paid to parents is eligible for HRA exemption, provided the employee can produce a valid rent agreement and receipts. However, rent paid to a spouse cannot be claimed, as such an arrangement is not considered a legitimate rental transaction by tax authorities.

2. Property Owner in Another City: An employee can claim HRA if they live in rented accommodation in a different city, even if they own property elsewhere. Additionally, they may also be eligible for home loan tax benefits on the interest and principal paid for their property.

3. Section 80GG Deductions: Self-employed individuals and salaried employees who do not receive HRA can claim deductions under Section 80GG, subject to specific conditions. This section allows a deduction for rent paid, but with limits based on income and rent paid.

How is HRA calculated?

HRA is calculated by comparing three figures and choosing the smallest one for tax exemption. The calculation includes:

1. Actual rent paid minus 10% of basic salary.
2. HRA received as part of salary.
3. 50% of basic salary if the employee resides in metro cities (Mumbai, Delhi, Kolkata, or Chennai), or 40% of basic salary for non-metro cities.

For example:

• Mr. A lives in Delhi and pays ₹10,000 in rent per month.
• His HRA received is ₹20,000, and his basic salary is ₹40,000.
• The HRA exemption would be calculated as
  • Rent paid (₹10,000 × 12) = ₹120,000 minus 10% of salary (₹40,000 × 12 × 0.1) = ₹48,000. So, ₹72,000.
  • Actual HRA received: ₹20,000 × 12 = ₹240,000.
  • 50% of basic salary = ₹40,000 × 12 × 0.5 = ₹240,000.
• The least of the above three is ₹72,000, which is the eligible HRA exemption.

FAQs on PAN Card for HRA Exemption

1. Who can claim HRA exemption? Salaried individuals who receive HRA as part of their salary and live in rented accommodation.

2. When is a rent agreement required for HRA exemption? A rent agreement is typically required to support an HRA claim, especially if the rent exceeds ₹1 lakh annually.

3. When is the landlord’s PAN mandatory? The landlord's PAN is mandatory if the annual rent paid by the employee exceeds ₹1 lakh.

4. What happens if the landlord refuses to provide their PAN? If the landlord refuses to provide their PAN, the employee will not be able to claim the HRA exemption. However, the employee can file for an excess tax refund during their income tax return filing.

5. Is a rent agreement mandatory for claiming HRA? Yes, while not always enforced strictly, most employers require a rent agreement for HRA claims.

6. Can I claim HRA without rent receipts? Yes, you can claim HRA without rent receipts if your rent is less than ₹3,000 per month. For higher amounts, rent receipts are mandatory.

7. Can I claim HRA without a landlord’s PAN? Yes, you can claim HRA without the landlord’s PAN if the annual rent is less than ₹1 lakh. However, PAN details are required for higher rental amounts.

8. Does HRA fall under Section 80C deductions? No, HRA does not come under Section 80C. It is a separate exemption under the Income Tax Act.

The requirement of the PAN card of the landlord for HRA exemption is a measure to prevent tax evasion and ensure transparency. Employees claiming HRA must ensure they comply with this requirement if their annual rent exceeds ₹1 lakh. Failure to provide the necessary documentation can result in the denial of HRA exemption and higher taxable income. Always keep rent receipts, agreements, and the landlord's PAN details handy when applying for this exemption.