The Central Board of Direct Taxes (CBDT) on April 8, 2024 issued a statement refuting recent media reports suggesting a special drive to reopen cases related to house rent allowance (HRA) claims. Addressing these concerns related to potential retrospective taxation by reopening HRA-related cases, the CBDT said the re-matching of rent paid by the tenant and the rent received by the recipient was only being done for a “small number” of high-value cases.
The Income Tax Department acknowledged that there were indeed instances of information mismatch between taxpayer filings and departmental data that was detected “as part of its routine exercise of verification of data”.
“In such cases, the department has alerted the taxpayers to enable them to take corrective action. However, some posts on social media, as well as articles in the media, have highlighted enquiries initiated by the Central Board of Direct Taxes (CBDT) in cases where employees have made incorrect claims of HRA and rent paid. At the outset, it is stated that any apprehensions about retrospective taxation on these matters and re-opening of cases on issues pertaining to HRA claims is completely baseless,” the Income tax department said.
House rent allowance (HRA) is a key component of salary income for employees residing in rented accommodations which the employees can claim for tax exemption while filing their income tax returns (ITRs). Employees may have to relocate to a new city as part of their job profile and live in a rented accommodation. To compensate employees for such rental expenses, many employers offer a financial incentive called HRA, which is not taxable.
One can claim for HRA exemption from income tax if he/she is salaried or even self-employed. However, these exemptions are not available under the new tax regime. Under the old tax regime, taxpayers can claim exemptions for HRA received during the year by submitting valid rent receipts. If annual rent exceeds Rs 1 lakh, the beneficiary has to report the landlord’s Permanent Account Number (PAN) as well to claim exemption. Employees are allowed to avail HRA up to 50 per cent of the basic salary in metro cities and 40 per cent of the basic salary in non-metro cities.
The CBDT has now clarified that data analysis was conducted in select high-value cases to scrutinise discrepancies between rent payments made by employees and rent receipts received by landlords during the fiscal year 2020-21.
This verification process, limited to a small number of cases, did not entail a widespread reopening of cases, particularly since taxpayers had until March 31, 2024 to file updated returns for the relevant assessment year.
The CBDT reaffirmed that there was no special drive underway to reopen cases related to HRA claims, contrary to reports circulating on social media and in some media outlets. It clarified that the recent data analysis focused on a select number of high-value cases and did not entail a broader reopening of cases.
It further said that the primary objective of this e-verification exercise was to address information mismatches specifically for the fiscal year 2020-21, without impacting other cases.
