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Claiming HRA deduction of more than Rs 50,000/month? Know the new tax rules

Renu Yadav     February 1, 2017

In order to increase the text net, the Finance Minister has proposed that those who are claiming a House Rent Allowance (HRA) of more than Rs 50,000 per month will have to deduct tax at source at the rate of five per cent.

The TDS will have to be deducted on the last month of the year in which rent is paid or last month of tenancy .    

"In case the landlord (payee) does not have a Permanent Account Number (PAN), then the tax deduction shall not exceed the amount of rent payable for the last month of the previous year or the last month of the tenancy, as the case may be," said Poorva Prakash, Senior Director, Deloitte Haskins and Sells LLP.

From Government perspective this amendment would ensure that there are no revenue leakages on account of such rental income. This will also discourage people who were claiming the HRA deduction fraudulently quoting wrong Permanent Account Number (PAN) of the landlord. Quoting PAN of the landlord was mandatory in case the rent paid during the year was more than Rs one lakh a year.

"This has been primarily introduced to check the evasion in those cases where the salaried individuals were claiming HRA exemption against the bogus rent receipts. Though requirement for furnishing PAN for landlord was already there if the rent exceeds Rs 1 lakh per year but it was not proving an effective trail as the employer was never checking the authenticity of the PAN." said Amit Maheshwari, Partner at Ashok Maheshwary & Associates LLP.

"The Government has tried to ease the compliance burden by allowing such tenant to deduct tax only once in a previous year and doing away with the requirement of Tax Deduction Account Number (TAN),"added Poorva.

The aforementioned proposal  changes is to take effect from 1st June, 2017. "It will primarily impact individuals or HUFs (other than those whose books of accounts are required to be audited). The tenant will need to ensure that the aforementioned compliance is duly adhered within the prescribed time limits. Any compliance in this regard may lead to interest / penal consequences," added Poorva. 


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