ITR filing: Things to note while claiming HRA, housing loan interest exemptions

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As the last date for filing I-T returns approaches, many claiming exemptions under home loan interest and house rent allowance have come under the Income Tax department's scanner.

Onmanorama spoke to chartered accountant and taxation expert Subin V R to clarify certain queries on the matter.

Could you please enlist a few scenarios where HRA claims can be flagged?

There are two scenarios where this can occur:

1. Claiming HRA when you have no exemption

If the taxpayer claims an HRA exemption without being eligible for it in Form 16, he/she will be flagged by the I-T department. In some cases, the tax payer receiving HRA may not be eligible for the exemption.

2. Claiming more HRA deduction

You can also be taken to task if you have an exemption but you claim more deduction.

There've been instances where people claim HRA deduction by paying rent to their spouse or close relative. Is this legally acceptable?

Yes. It is legally acceptable as long as the property is exclusively owned by spouse or relative. The taxpayer claiming HRA deduction should not be a co-owner of the property.

A rent receipt signed by the landlord with necessary details, a rent agreement preferably registered by the sub-registrar, documentation of payment through banking channel is sufficient proof for claiming rent exemption.

For rent higher than Rs 1 lakh PAN is mandatory. If the landlord doesn't have a PAN number, he needs to give a declaration saying so.

The landlord must also mention rent as their income while filing returns to avoid complications during cross verification.

Where do taxpayers go wrong when it comes to housing loan interest exemptions? What is the right way to do this?

There are four scenarios where housing loan exemptions are flagged:

1. Claiming exemption without housing loan

2. You have a housing loan but claim more

3. You are a co-borrower but not a co-owner

4. You are a co-owner but not a co-borrower

It is advisable to keep in your possession a housing loan certificate from your banker showing interest and principal amount while claiming exemptions under this category. Ensure the co-owners are clearly mentioned in your property documents.

According to reports, AI-enabled tech is used to flag discrepancies. Do you think this is a fool-proof mechanism?

AI-enabled techniques use PAN, Aadhaar, TDS, GST, credit card, foreign transactions and even social media accounts for cross verification.

It is not fool-proof yet. For example, a mutual fund sale reported by both depository participant and broker can lead to duplication. But we can correct this in the Annual Information Statement (AIS).

AIS is comprehensive view of information for a taxpayer displayed in Form 26AS. Taxpayer can provide feedback on information displayed in AIS.

What are the other deductions that can be claimed under 80C? Which of these deductions are commonly used by taxpayers for tax evasion?

Most common deductions claimed under 80C include life insurance premium, National Savings Certificate, senior citizen scheme, Equity linked saving scheme, stamp duty in purchase of property and repayment of loan.

Insurance premium and tuition fee are commonly used for evasion by taxpayers.

Medical expenses for parents who are senior citizens is one of the most misused exemption under 80D.

While cross verification is possible for employer-employee transaction, it is difficult for cases like medical expenses. However, one needs to have documents to support claims if chosen for a random scrutiny.

Do you think inflationary trends and unchanging income is pushing more people towards tax evasion? Will raising the standard deduction or raising basic exemption limit ensure better compliance?

The present basic exemption limit is Rs 2.5 lakh in the old regime. It was not changed after 2014-15. Basic exemption is Rs 3 lakh in the new regime. It should be increased to at least Rs 5 lakh. Increasing the standard deduction helps only salaried class.

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