Salaried people have been claiming the tax benefits to save their hard earned money. These provisions include saving tax on house rent (HRA), travelling (LTA) and interest paid on housing loan. Although these provisions change steadily, like exemption limit etc., a new radical change is proposed in the way one claims these deductions.
If you as an employee have not done this already, you will be asked to fill a new form 12BB to lay out the details of the deductions you want to claim. Rules have been made applicable from 1st June 2016.Let’s try and understand the details of this provision and see what changes.
Why a new form?
The obvious answer is to verify the genuineness of the claims submitted by the employees. One may no longer be able to provide fake bills to claim income tax deductions for leave travel allowance (LTA) and house rent allowance (HRA). Changes announced are aimed at plugging leakages on account of fake bills. Earlier employers were taking a declaration from an employee. However, there was no standard format for the same. Introduction for this new form will standardize the process.
What are the exact changes?
The new form introduced is pertaining to various deductions and exemptions, below are the few deductions for which the provisions have been changed
- House Rent Allowance
HRA is exempt under section 10 (13A) of the Income Tax Act. Apart from furnishing rent receipts and/or rent agreement as a documentary evidence, employees now have to provide name and address of the landlord. Also, Permanent Account Number (PAN) of the Landlord needs to be furnished if the aggregate rent paid during the year exceeds one lakh rupees.
- Leave Travel Concession or Assistance (LTA/LTC)
To claim LTA/LTC, employees need to furnish all the details in documentary evidence of the actual expenditure incurred. Also submit boarding pass and tickets to claim the above.
- Interest payable on Home Loan (Section 24)
To claim deduction under section 24 on Interest payable on Home Loan, employees need to furnish details of lender such as name, address, PAN and amount of interest paid / payable to the lender. Also, it is mandatory to provide PAN of the lender.
Does one need to pay more tax?
No, there is no increased financial burden. These provisions have nothing to do with tax rates or exemption limit. As mentioned above the intention is to plug in the leakage and standardize the process. Details such as PAN of the house owner would help the authorities to track fudged claims. The authorities can also verify whether rent received by the owner was duly disclosed in his or her I-T return.
There is nothing much to worry about these changes, in fact the most common deduction pertaining to investment under section 80(C), demands no change at all. As always one needs to declare all investments and submit the proofs before the financial year ends
This new rule will streamline collection and maintenance of information for the Government and also provide for a standard procedure in case of an employer to collect necessary documents. It will be beneficial to stop fake claims on above deductions.