Salaried folks paying rent to their folks and getting the HRA benefit are going to have a tough time proving their claims to the Income Tax Department in the upcoming assessments. The new disclosure norms that are coming in have a huge possibility of bringing these claims back to the taxman.
It’s common knowledge that people have long been showing rent paid to parents as a way of claiming House Rent Allowance (HRA) for themselves. It’s not a crime. It is actually permitted by Income Tax rules. However, with the new disclosure norms, taxpayers need to be a little more careful in the coming times.
The government is trying to tighten the norms of HRA claims and bring them under a more strict regime, so it won’t take long to bring in the new disclosure norms into the income tax system, the sources claimed.
The new disclosure norms are expected to include details on the landlord, rent paid to the landlords, and other documents in case a higher rent is claimed. “The government wants people to show the exact details so that it does not become an issue for the taxman later.” The tax authorities would be on the look out in the coming times if these norms would be followed by the taxpayers.
“Income Tax experts, however, said, although paying a rent to the parents or other relatives is not a crime in any sense, and there are no strict norms that need to be followed, it will become a challenge for the taxpayer now to show the exact details.”
“The people are just required to show that the rent was paid to the family member and that the family member in turn declared it as income,” a source claimed. “This part is going to be a little hard for the taxpayers to follow now, but it’s not impossible to prove,” the source said.
Some people may feel like staying away from the situation altogether, while the others will go on with the arrangements. There are already people in the market who pay rent to their parents but don’t show them to the taxman as part of the HRA benefit.
While paying rent to family members for getting the HRA benefit is still allowed by tax law, it is only valid if there are valid arrangements made. For instance, there should be some documents like a rent agreement and proof of payment to show to the taxman.
The latest rules have been added by the government in an effort to tighten the income tax net. This can help in making the collection of tax much more efficient and can also make the filing of tax returns much simpler. This is part of the government’s ongoing effort to improve compliance with the income tax law without making any substantive changes.
The government has been tightening the rules around the HRA benefits in the previous years. In order to claim it, the taxpayer has to submit the rent agreement to his employer, who deducts the tax.
The new disclosure norms will enable the government to know the true picture of the amount paid as rent in India. “The new rules will enable the tax authorities to check whether the claimant is really renting a house, and if yes, from whom, and what amount,” the sources added.
It is important to note that the government doesn’t intend to curb the right of anyone to rent to his relatives. This right exists under the income tax law and there are no restrictions in this regard. The new disclosure norms are meant to ensure that the taxpayer doesn’t claim HRA for a period in which he has actually lived with his parents in a house owned by them.
