Why you shouldn’t think of fake rent receipts now?

Since ages, the salaried employee provides fake rent receipt from their relatives, friends or parents in order to lower their tax burden.  In order to crackdown this practice of providing fake rent receipt, the Income Tax department will now not consider fake rent receipts as a valid form of the tax concession. Now the employees will need to give supportive evidence and documents to claim the tax deduction. This step taken by the Income Tax Department makes tougher for the salaried employees to minimize their tax outgo.

Most of the employees working in private companies received an allowance called HRA (House Rent Allowance). HRA is paid by the employers to employees to meet the expense incurred in respect of residential accommodation.

As per the provisions of section 10(13A) of IT Act exempts such HRA received by employees from their employers subject to fulfillment of certain conditions:

1. Employee should have rented an accommodation, and

2. Employee should be occupying the said accommodation in actual

Apart from the above, all the salaried employees in receipt of HRA exemption must make sure that they have adequate transaction trail in the form of

1. Lease/Rent License Agreement with the landlord

2. Proof of rent payment

3. In case the employee has rented an apartment from any of his relative, then he/she reports such rental income on the tax returns

Moreover, if a salaried employee wish to get the HRA exemption, the employee must keep the following points in mind to avoid any disallowance

1. There must be a valid a Rent or Lease Agreement: There must be a signed rent or lease agreement between the landlord and the tenant (person claiming HRA exemption). Even, in the case where the recipient of the rent is the family members or relatives of the said employee (person claiming the employee), there should be a valid and signed rent agreement between them.

2.  Regular payments to the Landlord: Even if the employee is paying rent to his/her family members, the employee must make regular rent payments as per the terms of the rent or lease agreement. If the payments are made in any mode other than cash then it will become easy for the employee to show the proof of payment.

3. Reside in the rented house: The employee must reside in the rented accommodation for which he/she is claiming the HRA exemption. If it is found later on that the employee is not residing and any of his relatives/friends are only are residing in the said rented house, the exemption is given under section 10 (13A) of the IT Act i.e. HRA will be withdrawn.

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