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    Income tax returns (ITR): Staying on rent? You need PAN of your landlord or else you will suffer losses

    10 May    Direct Taxation
    May 10

    Income tax returns (ITR): Staying on rent? You need PAN of your landlord or else you will suffer losses

    Under section 10(13A) of Income Tax Act, a deduction is permissible for house rent allowances (HRA). However, not all amounts are tax exempted from this allowance.

    There are various income tax exemptions on facilities offered under your pay scale such as entertainment, telephone bills and some other reimbursements. Also, even the rent you pay from your salary has income tax benefits. Talking about rent, HRA is among the most popular allowances available to employees for tax exemption purposes. But did you know, if your rent paid exceeds Rs 1 lakh, then you will have to furnish the Permanent Account Number (PAN) of your landlord. Under section 10(13A) of Income Tax Act, a deduction is permissible for HRA. However, not all amounts are tax exempted under this category.

    Notably, HRA cannot be more than 50% of your basic salary. Tax claims under HRA is available to those whose actual rent paid is less than 10% of their basic salary – 50% of basic salary is for those staying in metro cities and 40% of basic salary for those living in non-metro areas.

    For example, if you stay in Mumbai and pay rent of about Rs 12,000 per month during the fiscal year 2017-18 (the assessment year of 2018-19). Your basic salary stands at Rs 40,000 with an HRA of Rs 20,000 per month from employer.

    Then your actual HRA for that year would be Rs 2,40,000 (Rs 20,000 X 12). Meanwhile, your rent paid in the same period would come around Rs 96,000 [(12,000 x 12) – 10% of basic salary {(40,000 x 12) X 10%}]. Furthermore, as you live in Mumbai a metro city, then your 50% of basic salary would come around Rs 2,40,000 [(Rs 40,000 x 12) X 50%].

    In the above three calculations, you can claim the least amount as tax benefit which in this case would be rent paid.

    But if you want your employer to deduct lower TDS on HRA, then you will have to submit a form number 12BB. In this form, if your rent paid is above Rs 1 lakh, then the PAN details of landlord is submitted. The same is applicable if there are more than one landlord.

    In case, if your landlord does not have a PAN, a declaration from the landlord including name and address should be given to the employer. This one can be time consuming. Hence, before opting for a house on rent, make sure your landlord has accurate identity proof, which can help you claim income tax exemption.