In an effort to promote voluntary compliance and discourage non-compliance, the Income Tax Service has now made available an Annual Information Statement or AIS for individual taxpayers. The AIS is able to give an almost complete view of a taxpayer’s financial transactions. This is a source of information that can be downloaded by logging into https: // eportal. Incometax.gov.in/. It includes details of a taxpayer’s savings account interest (with bank account number), dividend income, stock transactions, overall mutual fund transactions (not SIPwise), information on remittances abroad and many other details.

One of the interesting and important elements included in AIS is the rental income of a landlord. The AIS now displays the rental income of those who have rented their property to another taxpayer; which in turn claims the HRA exemption for the rent paid to the landlord. Let’s understand how it works. To enable the HRA exemption, employers are required to collect the owner’s PAN from the employee when the monthly rent paid by an employee exceeds ??8,000. This information is then submitted by the employer in the TDS return they filed on Form 24Q, as required by section 192 of the Income Tax Act.

Let’s understand this further with the help of an example. Suman from Delhi lives and works in Bangalore. Her employer gave her the opportunity to claim rent allowance (HRA). HRA is an important part of a salaried employee’s income. Suman can apply for a tax exemption under HRA rules if she lives off rent and pays rent.

All Suman has to do is declare to the employer that she wishes to apply for the HRA exemption by submitting rent receipts. She is also required to hand over the rental agreement for the house that has been rented. According to the rules of income tax, in case the monthly rent exceeds ??8000, the owner’s PAN must be given to the employer. Suman pays ??10,000 per month to Aruna, its owner. She asks Aruna for a copy of her PAN card and submits it to her employer. Her employer collects similar information from all employees who apply for an HRA exemption when the rent exceeds ??8,000 per month. The employer then files a TDS statement deducted from wages by completing Form 24Q where each of these owners PAN numbers is reported, in cases where the HRA exemption has been allowed.

When Aruna downloads her AIS from the tax department’s website, she can see the rental income mentioned there. She can no longer avoid declaring it on her income tax returns.

The government has put in place several mechanisms to ensure that rental income is tax-free. One of them was the introduction of section 194I via the 2017 budget. In accordance with this change, individuals (not covered by the tax audit) pay rent to a resident of India, when the rent exceeds ??50,000 per month, are required to deduct TDS at 5%.

This amendment entered into force on June 1, 2017. The inclusion of rental income in AIS is now the last straw. It could also draw a curtain on bogus HRA claims, where taxpayers have provided family members’ PAN numbers or even false PAN numbers assuming it’s just a reporting requirement. Whatever PAN they report, rental income will carry over to that PAN and if that income is not included in the ITR, this may become a reason to receive an income tax notice.

On the other hand, a genuine person may find false rental income in their AIS, when they did not actually earn such income. This can happen in a situation where someone has made a false HRA statement and mistakenly submitted their PAN number as the owner’s. These taxpayers must submit a “feedback” on the AIS on the electronic income tax portal, where they can declare that such an amount is “incorrect”.

The main objective of the AIS is to allow the prior filing of the RTI. As this form stabilizes and when the time comes, all the details in it relating to various income, TDS, taxes paid can be pre-declared in the taxpayer’s income statement. It would be good practice to review this form on weekends over a hot chocolate.

Archit Gupta is the founder and CEO of Clear.

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