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Tax Exemption on HRA – PAN of the Landlord

As per a recent circular issued by the Income Tax Department, employees who pay house rent of more than Rs 1 lakh per annum should submit the Permanent Account Number (PAN) of their landlord to the employer if they wish to claim tax exemption on House Rent Allowance (HRA). This is effective for the tax year 2013-14 (A.Y. 2014-15). In case the landlord does not have PAN, employees should collect a declaration to that effect from the landlord and submit the same to the employer.

The relevant excerpt from the circular is as follows.

Further if annual rent paid by the employee exceeds Rs 1,00,000 per annum, it is mandatory for
the employee to report PAN of the landlord to the employer. In case the landlord does not have
a PAN, a declaration to this effect from the landlord along with the name and address of the
landlord should be filed by the employee.

In the tax year 2012-13, employees were required to submit the PAN of the landlord only if the annual rent they paid was above Rs 2 lakh. With the Income Tax Department bringing the rent amount floor to Rs 1 lakh for the tax year 2013-14, a large number of employees are likely to get impacted.

What if an employee changes residence and has multiple landlords in a year?

If an employee resides in one house throughout the year and pays rent in excess of Rs 1 lakh, the employee needs to furnish the PAN of/declaration from the landlord. However, if an employee changes residence during the year and pays less than Rs 1 lakh to each landlord but pays in excess of Rs 1 lakh in aggregate in annual rent, how should the directive in the circular be understood?

For example, if an employee lives in a house for the first six months in the year paying a total rent of Rs 60,000 and lives in another house for the remaining six months paying a total rent of Rs 60,000, should he furnish the PAN of both the landlords since the aggregate rent he pays is more than Rs 1 lakh in the year?

Is the emphasis on the aggregate annual rent paid by the employee or on a single landlord receiving more than Rs 1 lakh in rent in a year? The circular is not clear in this regard.

We would like to adopt a conservative view on this and suggest that employers seek the PAN of/declaration from the landlord(s) if the annual rent paid by an employee exceeds Rs 1 lakh — irrespective of whether there is one or many landlords, and irrespective of whether the rent paid to each landlord exceeds Rs 1 lakh.

A word of suggestion

Kindly inform your employees that if they are unable to submit the PAN of/declaration from their landlord they will lose tax exemption on HRA if their annual rent exceeds Rs 1 lakh in 2013-14. HRA exemption is an important avenue of tax saving for many employees and loss of HRA exemption can lead to a significant increase in tax for the employees towards the end of the year.

Please request your employees to be prepared to submit the PAN of/declaration from their landlords whenever they submit the rent receipts. We have a few months to go before we start collecting rent receipts as part of the year-end scrutiny. Employees, if they are informed well in advance, will have sufficient time to collect the PAN of/ declaration from their landlords.