Critical tax-related changes tenants and landlords must know
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Are you living in a rental property? If yes, the government of India has brought about a number of key changes in the regulatory and tax provisions in year 2016-17. Some of these provisions directly impact tenants as well as landlords.

Let’s discuss these key provisions to avoid any last moment hassles at the end of the fiscal year.

Submission of rent receipts towards HRA exemptions

It is a very common practice and we all know about it. In order to claim HRA (House Rent Allowance) under Section 10 (13A) of the Income Tax Act, all you need to do is to submit rent receipts and PAN (Permanent Account Number) of the landlord.

If the rent is below Rs 1 lakh, you don’t need to submit the PAN details of the landlord. Even if it exceeds the threshold of Rs 1 lakh, you can even skip submitting PAN details by producing a declaration that the landlord does not have the PAN number. It is pretty easy until now – but not anymore.

The government is cracking down on tax evasion by landlords and even tenants who might be filing for fictitious HRA claims despite living in parental house.

From the current fiscal year, the assessing officer from the Income Tax Department has all the powers to check the genuineness of your claims. The department can ask you about the evidences like electricity bill or property tax bill to establish the ownership of house.

They can also ask you for a proof of your tenancy. For this purpose, you may be asked to provide certificate from your RWA (Resident Welfare Association) confirming your tenancy. In case you fail to provide any such evidences, the IT department may refuse to provide you HRA related IT exemptions.

Withholding Tax

The IT Act has been amended with a new provision on withholding tax under section 194IB, tenants who are paying up rent of more than Rs 50,000 a month need to withhold 5 percent as withholding tax and deposit this amount with the IT department within a prescribed time limit.

This provision would keep a check on property owners who are receiving high rental incomes and not paying up sufficient taxes.

Model Tenancy Act

The new Model Tenancy Act aims to replace the archaic provisions which are no more applicable in present environment. The Act would replace age-old Buildings Lease and Rent Control Act.

The new Act would make the registration of all the rental agreements of period exceeding 11 months. The minimum amount of security deposit will be ascertained at 3 month while currently there are several locations where landlords take 1-2 months’ security deposit.

The provisions of the Act seem to be inclined towards landlords. The Act prohibits tenants’ rights to occupy a house after the lease period of 6 months.

Millions of people in India are living in rental accommodations and the total rental market involves billions of dollars. However, the rental market does not have the needed level of transparency and regulatory direction.

With an increasing focus on affordable housing, it is expected that the government will consider both the wheels: landlords and tenants.