JANUARY 12, 2018

By Maninder Jain

PRESENTLY salaried people can avail HRA deduction if they are staying in rented property. They can claim HRA deduction as per the following Formula (as per SEC 10 (13A) READ WITH RULE 2A) :

2A. The amount which is not to be included in the total income of an assessee in respect of the special allowance referred to in clause (13A) of section 10 shall be -

(a) the actual amount of such allowance received by the assessee in respect of the relevant period; or

(b) the amount by which the expenditure actually incurred by the assessee in payment of rent in respect of residential accommodation occupied by him exceeds one-tenth of the amount of salary due to the assessee in respect of the relevant period; or 3

[(c) an amount equal to-

(i) where such accommodation is situate at Bombay, Calcutta, Delhi or Madras, one-half of the amount of salary due to the assessee in respect of the relevant period; and

(ii) where such accommodation is situate at any other place, two-fifth of the amount of salary due to the assessee in respect of the relevant period,]

(d) 4 [***]

whichever is the least.

However certain class of employees are mis-utilising the deduction by claiming excessive rent payment to their own relatives which is defeating the intention of law. Income Tax tried to plug some loophole by taking PAN no. of Landlord. However, this only plugged the loophole by checking whether same Income has been shown by Landlord or not. But in case of payment to Relative, usually employee pay Excessive Rent to their Non Working relative so the marginal tax rate is very less.

The Suggestion is if we add the following limit in Rule 2A:

(d) Fair rent of the property in case the rent is paid to Relative. (“Relative” is already defined in Income Tax Act) This will plug the Loophole for those persons who claim excessive deduction of HRA by paying exorbitant rent of property.