What Should Landlord Do In Case Of False HRA Claim?

Let us first gain a basic knowledge on what is HRA?

HRA (House Rent Allowance) received by salaried employees by the employer according to the location of rented residence. It basically depends on employees salary, location, rent paid. The benefits of HRA can also be claimed by self employed people. The individuals who have their own property cannot avail its benefits.

HRA Exemption will be Lower of:

– Rent paid – 10% salary or,

– 50% of the salary for Metro and for non-metro cities it is 40% of the salary or,

– Actual HRA received.

Salary is Basic + DA

When is Landlord responsible?

In case of false HRA claim, if landlord is not notified/known to any unauthorized activity with their PAN, there will be no adverse judgment against landlord. But if the landlord is aware to the use of his PAN for a fake HRA claim, then it will be concerning as legal actions need to taken.

The income tax department encountered numerous mismatch cases where rent collected and HRA claims were different. Employers revealed fictitious payments of rent to the landlord to avail HRA claim.

Landlords if did not have realization about the squandering use of their PAN, there will not be any legal issues. However landlords need to provide details about it to the tax authorities. Also, if landlord reveals that they did not receive any rent and their PAN was misused, the case under them shall be closed. As for every HRA claim, there should be proof of rental income that matches income tax.

Fraudulent use of PAN for HRA claim shall emerge in the inquiry by tax authorities with respect to understatement of income of a PAN card holder. In this case, tax authorities may send a notice asking for all the documents required and the elucidation of rent including use of PAN of a landlord, if tenant fails to clarify then the notice is sent to the landlord.

What should a landlord do?

i) Include clauses in the rental agreement to shield themselves.

ii) Analyze tax information to notice any unauthorized claims.

iii) File a grievance through the income tax portal about the fraudulent use of PAN for HRA claims.

iv) Collect any necessary documentation which may act as a evidence like bank statements, lease papers etc.

v) Maintain detailed records of all the agreements.

False HRA claims will sure cause trouble to both the tenants and landlords, however its safe to not endulge in any law breaking activity and have proper documentation of your income and bank statements in case of a fraudulent unknown activity occurs.