Income Tax Notice on HRA Claims? Here’s What You Need to Do!

Claiming House Rent Allowance (HRA) is a popular strategy for salaried individuals to save on taxes. However, if you've claimed a substantial HRA deduction (5 lakh or above) without deducting TDS on rent per Section 194IB, you may have received a communication from the Income Tax Department. This has raised attention due to recent compliance measures.

If you've gotten such a notice, don't stress! Here's all you need to know regarding why this occurs, what steps to take, and how to remain compliant.

Why Did You Get an HRA Notice?

The Income Tax Department is carefully reviewing significant HRA claims along with non-compliance with Section 194IB of the Income Tax Act. Here's the reason:

If your rent exceeds 50,000 per month, you are required to deduct TDS at 5% on the rent paid and remit it to the government.

If you neglected to deduct and remit this TDS, your HRA claim might be highlighted.

Mismatch in Landlord's Income Tax Returns

If your landlord has not reported rental income on their tax return, the IT department may send notices to both parties involved.

Unusually High HRA Claims

If your HRA claim appears excessively high compared to your salary or reported rent payments, the system may flag your return for review.

If you received a notice, here's how to address the matter:

1. Check Your HRA Claim

Review your ITR information to confirm that the HRA claim aligns with your rent receipts and salary components.

Cross-verify your Form 16 and Form 12BB submitted to your employer.

2. Amend Your ITR (If Necessary)

If an incorrect HRA deduction was claimed by mistake, amend your ITR as soon as you can to avoid penalties.

Check the ITR revision deadline on the income tax portal.

3. Pay TDS with Interest

If you overlooked deducting TDS under Section 194IB, you must:

Calculate TDS at 5% of the total rent paid (if rent > 50,000/month).

Remit TDS along with interest and penalties via Form 26QC.

File a TDS return and generate Form 16C for your landlord.

4. Secure a CA Certificate (If Landlord Paid Taxes)

If your landlord has declared rental income and paid taxes, obtain a certificate from a Chartered Accountant confirming the tax payment.

This can be submitted as a response to the IT notice.

5. Respond to the IT Notice Swiftly

Log in to the Income Tax E-Filing portal and navigate to the 'Compliance' or 'E-Proceedings' section.

Upload relevant documents such as rent receipts, Form 16C (if TDS was paid late), and CA certification.

Provide a valid explanation if TDS was not deducted due to an oversight.

How to Prevent HRA Scrutiny in the Future?

To avoid similar issues moving forward, adhere to these best practices:

Properly Deduct TDS on Rent - If your rent surpasses 50,000/month, deduct 5% TDS and remit it using Form 26QC before the deadline.

Ensure Proper Documentation - Maintain rent agreements, rent receipts, and the landlord's PAN details to support your HRA claim.

Cross-Check Form 16 - Confirm that your employer accurately reflects HRA in Form 16 and that rent receipts correspond to your claim.

Consult a CA for Significant HRA Claims - If your HRA deduction is considerable, seek advice from a tax professional to ensure compliance.

Getting a notice related to HRA can be nerve-wracking, but acting quickly can help avert more complications. If you've gotten such a notice, examine your tax returns, amend your ITR if needed, and confirm TDS adherence under Section 194IB. Consulting with a Chartered Accountant can assist you in managing the process effectively and steering clear of future audits.

Maintain compliance and prevent fines by keeping yourself updated on tax laws!

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