Many salaries individuals rely on House Rent Allowance (HRA) to reduce their tax burden but not all adhere to the tax regulations. Now, the Income Tax department has stepped up scrutiny. It has issued notices to those who claimed HRA without deducting Tax Deducted at Source (TDS) on rent payments in past financial years. This move aims to ensure compliance and prevent tax evasion, as reported by Livemint.
If you have claimed HRA but didn’t deduct TDS on rent and the tax Department may invalidate your claim. The tenants must deduct 2 per cent TDS on rent exceeding Rs 50,000 per month if the landlord is a resident Indian. However, if the landlord is an NRI then the TDS rate is much higher at 31.2 per cent.
Failing to deduct or deposit TDS can result in penalties. If TDS is not deducted, a 1 per cent interest per month is charged. If TDS is deducted but not deposited on time, the interest increases to 1.5 per cent per month. Additionally, a late filing fee of Rs 200 per day applies until the e-TDS return is submitted.
If you get a notice from the Income Tax Department, don’t panic! The department may consider you a defaulter under Section 201, but there are ways to avoid penalties. If your landlord has already paid tax on the rent, you can submit Form 26A along with a CA certificate as proof. This can help you avoid interest and penalties. If you mistakenly claimed HRA, it’s best to file an updated income tax return before March 31, 2025, to prevent further scrutiny and fines.
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