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January 4, 2022

Claiming HRA check AIS and ensure rent receiver file ITR

by Mahesh Mara in Income Tax

Claiming HRA check AIS and ensure rent receiver file ITR

The Income Tax Department has recently come up with Annual Information Statement. Annual Information Statement provode the assessee a comprehensive view of all the financial transactions made during the year, ‘Annual Information Statement’ aims to make the income tax return filing quite easy.

The Government has enlarged the scope of Form 26AS to cover information regarding various transactions made by a person during the year. The CBDT has omitted Rule 31AB, and a new Rule 114-I has been inserted to provide that the authorities will upload the Annual Information Statement (AIS) in Form No. 26AS in the registered account of the assessee. Such form shall consist of the following information:

  • Information relating to TDS and TCS;
  • Information relating to Specified Financial Transactions (SFT);
  • Information relating to the payment of taxes;
  • Information relating to demand and refund;
  • Information relating to pending proceedings;
  • Information relating to completed proceedings; and
  • Information received from any officer, authority, or body performing any functions under any law or information received under an agreement referred under section 90 or section 90A or information received from any other person to the extent it may be deemed fit in the interest of the revenue.

All such relevant information available in AIS shall be automatically pre-filled in the relevant ITR Form. ‘Annual Information Statement’ aims to make the income tax return filing quite easy. Out of various information categories covered under ‘Annual Information Statement’, in the present article, we will deal with one of the information categories, namely, rent payments.

What is HRA How is Tax Exemption from HRA Calculated?

HRA is the house rent allowance in income tax. It means the salary component received towards the rent payment and is allowed as a deduction from taxable salary under Section 10(13A).

The deduction available is the least of the following amounts:

  • Actual HRA received
  • 50% of [basic salary + DA] for those living in metro cities
  • 40% of [basic salary + DA] for those living in non-metros
  • Actual rent paid should be less than 10% of basic salary + DA

For Instance

Mr X, employed in New Delhi, has taken up an accommodation on rent for which he pays Rs. 15,000 per month during the Financial Year (FY) 2020-21. He receives a basic salary of Rs. 25,000 monthly and DA of Rs 2,000, which forms a part of the salary. He also gets an HRA of Rs 1 lakh from his employer during the year.

Let us understand the HRA component that would be exempt from income tax during FY 2020-21. As per the given data, calculate the following:

  • HRA received – Rs. 1 lakh
  • 50% of basic salary and DA – Rs. 1,62,000 (50%*(Rs. 25,000+Rs. 2,000)*12 months)
  • Rent paid minus 10% of salary- Rs. 1,47,600

Therefore, the entire HRA received from the employer is exempt from income tax in the above example.

How to Claim HRA When Living With Parents?

A person can pay rent to his/ her parents and claim the House rent allowance provided. He/ she has to enter into a rental agreement with the parents and transfer money to them every month. This way, the assessee can save on taxes. Also, the assessee’s parents need to report the rent received as income in their income tax returns. If their other income is below the basic exemption limit or taxable at a lower tax slab, they can save tax on the family income.

Is it Mandatory for the landlord to file the return of income?

‘Annual Information Statement’ will grab information, under the category ‘Rent Payments’ on the basis of information provided by the tenant at the time of claiming HRA. The Annual Information Statement will provide the Amount of HRA exemption claimed by the Tenant with the employer but the landlord is required to disclose full amount of rent received.

For Instance

Mr X, employed in New Delhi, has taken up an accommodation on rent from Mr. Y for which he pays Rs. 15,000 per month during the Financial Year (FY) 2020-21. He receives a basic salary of Rs. 25,000 monthly and DA of Rs 2,000, which forms a part of the salary. He also gets an HRA of Rs 1 lakh from his employer during the year.

Let us understand the HRA component that would be exempt from income tax during FY 2020-21. As per the given data, calculate the following:

  • HRA received – Rs. 1 lakh
  • 50% of basic salary and DA – Rs. 1,62,000 (50%*(Rs. 25,000+Rs. 2,000)*12 months)
  • Rent paid minus 10% of salary- Rs. 1,47,600

In the above case Mr. X will claim HRA exemption of Rs. 1,00,000 which will get reflected in Annual Information Statement of Mr. Y, but Mr. Y has to disclose total rent received Rs. 1,80,000 (Rs. 15,000*12)

In case inspite of the rent being reflected in the Annual Information Statement and the assesse fails to file the return than he shall be considered as assessee in default

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