Saturday 22 April 2017
The Mumbai tribunal said in a recent ruling that the assessing officer can now demand further proof for allowing HRA deduction.
Recent rulings from income tax tribunals on house rent allowance or HRA claims have brought the tax rebate to the fore. The Mumbai tribunal in a recent ruling said the assessing officer can now demand further proof for allowing HRA deduction.
“The judgment of Ahmedabad tribunal and recent judgement of Mumbai tribunal are not contradictory per se and have necessarily the similar import. In the ruling of Ahmedabad tribunal, the person was living with his wife and was transferring the rent amount to her bank account. As twin requirements of occupation and actual payment were satisfied, hence it was allowed,” said Sandeep Sehgal, director of tax and regulatory at Ashok Maheshwary & Associates LLP.
“The Mumbai tribunal has only imposed a stringent requirement to produce other necessary documents to prove the genuineness of the claim. Hence, people claiming the HRA exemption for rent paid to relatives are advised to maintain robust documentation to prove the actual payment, actual occupation and genuineness of transaction,” he added.
HRA forms a big component of an employee’s salary. Salaried individuals who live on rent can claim HRA to lower taxes. It is partially exempted from taxes. However, if the individual does not live in a rented accommodation, HRA is fully taxable. Tax experts say that after the tribunals’ rulings, the HRA claims will be under close scrutiny from the tax department.
Now, taxpayers who were claiming HRA exemption on the basis of fake rent receipts may find it difficult to claim the exemption, said Maneet Puri of Taxmann. Experts say that taxpayers, especially who pay rent to relatives, and claim HRA benefits could face higher scrutiny.