In a press launch dated April 8, 2024, the CBDT clarified that there is no particular effort to reopen circumstances of mismatch. CBDT acknowledged that considerations about retrospective taxation and reopening circumstances associated to HRA claims are unfounded. The launch talked about analysing knowledge in sure high-value circumstances of lease mismatches for the fiscal yr 2020-21.
However, taxpayers ought to stay cautious. According to an ET report, if there is a discrepancy between the lease paid and the lease acquired by the owner, potential tax evasion points could come up.
S. Sriram, Partner at Lakshmikumaran & Sridharan Attorneys (LKS), was quoted as saying, “The communication (April 8, 2024) from the CBDT is only a press release. It is not a statutory circular which would bind them. Wherever the Income-tax Authorities find that there is escapement of income, they are bound to examine them and bring the correct sums to tax.”
HRA claims: Which taxpayers ought to be involved
Taxpayers making false HRA claims, whether or not deliberately or unintentionally, ought to be involved about receiving a tax evasion discover from the earnings tax division.
For occasion, if somebody makes use of a faux rental settlement and receipts to assert false HRA, they’re knowingly trying to evade taxes.
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Mihir Tanna, affiliate director of direct tax at S.Ok Patodia LLP, shares an expertise the place a tenant unknowingly bought into hassle with the tax division attributable to a false HRA declare, regardless of genuinely claiming it.
According to Tanna, tenants ought to anticipate a state of affairs the place the owner denies receiving lease funds, probably nullifying the tenant’s HRA declare and main to bother with the tax division. The tenant would possibly obtain a discover concerning this problem afterward. Tanna cited examples the place landlords who beforehand accepted money lease funds could disassociate from the tenant when tax points come up. Landlords ought to understand that the tax division may pursue them for tax evasion in the event that they obtain rental earnings in money with out declaring it of their tax returns. Consequently, the tenant could face issues, because the tax division could suspect a false HRA declare, Tanna added.
Experts say that offering the owner’s PAN particulars is important when the annual lease exceeds Rs 1 lakh. With this info, the earnings tax division can monitor each the owner’s rental earnings and workers’ HRA claims. This applies to taxpayers receiving HRA of their wage and those that declare HRA straight when submitting their tax returns.
S. Sriram says that the Income-tax Department’s scrutiny can embody workers claiming HRA exemption by means of their employer and these looking for exemption of their tax returns. It may additionally contain people claiming lease as a enterprise expense and these deducting tax underneath part 194IA with out looking for any tax exemption.
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For the fiscal yr 2021-22 (Assessment Year 2022-23), the deadline for submitting an up to date earnings tax return (ITR-U) is March 31, 2025. According to Sujit Bangar, founder of TaxBuddy, a tax submitting help firm, “You are advised to file ITR-U if you believe there is a discrepancy in the HRA allowance claimed by you to avoid scrutiny.”
Individuals who’ve a major hole between lease paid and claimed, or those that straight claimed HRA throughout ITR submitting with out offering proof to their employers, ought to take be aware. Additionally, people who’ve claimed a considerable HRA quantity throughout ITR submitting but didn’t submit correct paperwork to their employer or preserve lease agreements or receipts ought to be conscious, Bangar acknowledged.
When and why would possibly the earnings tax division catch you?
Experts say that the earnings tax division can catch people for tax evasion. However, there are authorized limits that limit the tax division from revisiting old circumstances. Sriram explains that in response to present legislation, circumstances underneath part 149 can’t be reopened past 3 years from the tip of the evaluation yr, until the undisclosed earnings exceeds Rs 50 lakh. For FY 2019-20 (comparable to Assessment Year 2020-21), this 3-year interval ended on March 31, 2024.
Sriram additional added that presently, notices will be issued for fiscal yr 2020-21 and onwards if the undisclosed earnings is lower than Rs 50 lakh.
However, if the potential tax evasion quantity is at the very least Rs 50 lakh, a discover will be issued past three years but inside 10 years from the tip of the related evaluation yr, in response to Tanna.
The subsequent query is whether or not the tax division is set to catch potential tax evaders who is likely to be utilizing HRA to evade taxes, and if that’s the case, which circumstances would they aim? According to CA Sandeep Agrawal, co-founder of TeamLease Regtech, an organization specialising in regulatory and authorized software program options, the aim of e-verification was to inform tax filers about discrepancies in lease and HRA. It’s doable that the CBDT could pursue tax restoration proceedings for circumstances with vital discrepancies as a substitute of addressing each mismatch, contemplating the stability between tax restoration and the amount of circumstances to be managed after issuing restoration notices.
Who does not want to fret concerning the tax division catching them?
Tanna advises that taxpayers needn’t stress over HRA lease mismatches in the event that they’ve claimed HRA as per their Form 16, and if their landlord has declared this rental earnings of their tax return.
“Sometimes, due to certain issues, employees can not submit documents supporting HRA claims and claim HRA in ITR. It may result in notice from income tax for verification of claim. This is not an income tax notice and if the employee can verify his HRA claim with proof, nothing will happen,” Tanna additional explains.
