The Tax Department, or the Central Board of Direct Taxes (CBDT), clarified that the initiative to HRA issue notices and scrutinize a “small number” of cases with discrepancies between the rent paid by a salaried employee and the rent received by the landlord in FY21 was not part of a special drive, as reported in the media. Instead, it was based on data analysis of high-value cases where such mismatches were detected.
According to the department, any concerns about retroactive taxation or reopening of cases related to House Rent Allowance (HRA) claims are unfounded. The verification was conducted in a limited number of cases without reopening the majority of cases, especially considering that updated returns for FY 2020–21 (AY 2021-22) could have been filed by taxpayers until March 31, 2024.
The purpose of the e-verification was to address specific instances of mismatched data for FY 2020–21 without impacting other cases, the department clarified. These data mismatches were identified as part of the routine exercise of data verification by the Income Tax Department.
The department has notified the taxpayers about these discrepancies so that they can take appropriate action. House Rent Allowance (HRA) is a component of salary income and is taxable. However, employees living in rented accommodation can claim tax exemption on the HRA received by submitting valid rent receipts.
It’s important to note that taxpayers opting for the new tax regime forfeit certain exemptions, including the HRA exemption. The new tax regime will become the default option from FY25 onwards.
In summary, the scrutiny of cases with rent-related discrepancies was not part of a targeted drive, but rather a routine exercise based on data analysis. Taxpayers have been notified about these discrepancies and are advised to take necessary action.
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