Posted on March 28, 2025, by Niftynews
On March 28, 2025, the Income Tax Department began sending out notices to salaried individuals who have claimed House Rent Allowance (HRA) in their tax returns but failed to deduct Tax Deducted at Source (TDS) on their monthly rent payments. These notices are part of the department’s effort to verify HRA claims and ensure that taxpayers are complying with the necessary tax regulations. If any discrepancies are found, taxpayers are required to amend their returns before the March 31, 2025 deadline to avoid penalties.
Why Are These Notices Being Issued?
The Income Tax Department is targeting tenants who have failed to deduct TDS on rent payments exceeding ₹50,000 per month. The department has highlighted the rise in fake HRA claims, with many individuals trying to evade the proper tax procedures by not deducting TDS from rental payments.
According to reports, the Income Tax Department is asking taxpayers to verify their HRA claims. If the claims are incorrect, individuals must amend their tax returns before the end of the financial year, which is March 31, 2025. This is an essential step to avoid penalties and interest charges for failing to deduct or deposit TDS.
What Does the Law Say About TDS on Rent Payments?
As per the Income Tax Act, tenants are required to deduct 2% TDS on monthly rent payments exceeding ₹50,000, but this applies only if the landlord is a resident Indian. The TDS rate increases to 31.2% if the landlord is a Non-Resident Indian (NRI), regardless of the rent amount.
These laws are intended to ensure that landlords pay their fair share of taxes on rental income and that tenants do not make false claims for HRA. Failure to deduct or deposit TDS can lead to interest charges and additional penalties.
What Should You Do If You Receive a Notice?
If you receive a notice from the Income Tax Department regarding your HRA claim and TDS deduction, here’s what you should do:
- Verify Your HRA Claim: Ensure that the HRA claimed is accurate and reflects the actual rent payments made.
- Deduct TDS: If you haven’t deducted TDS on your rent payments, do so immediately. Remember, the rate is 2% for resident landlords and 31.2% for NRIs.
- Amend Your Tax Return: If your previous return didn’t include TDS deductions or had incorrect HRA claims, file an updated return before March 31, 2025, to avoid penalties.
- Provide Proof: In case you did deduct TDS but the department claims otherwise, you can provide the landlord’s tax return as evidence that the rental income was duly reported and taxes were paid. Form 26A can also be filed, along with a CA certificate, confirming that the landlord has reported rental income and paid taxes.
- Pay Any Penalties: Failing to deduct TDS or deposit it on time will incur interest charges. A 1% monthly interest applies if you didn’t deduct TDS, and if you didn’t deposit it, the interest rate increases to 1.5% per month. There is also a late fee of ₹200 per day for failing to file e-TDS, although the total fee cannot exceed the TDS amount.
Penalties and Consequences of Non-Compliance
If you ignore these notices or fail to amend your returns, the Income Tax Department may consider you a defaulter under Section 201 of the Income Tax Act. This can result in additional penalties, interest, and even legal consequences.
It’s essential to act promptly if you’ve received such a notice to avoid unnecessary complications. If you have already claimed genuine HRA without the TDS deduction, Bhawna Kakkar, a Chartered Accountant, mentioned that there’s no need to file an updated return unless the claims were incorrect.
Conclusion: Take Action Before the March 31 Deadline
As the financial year comes to a close, tenants who have claimed HRA without deducting the necessary TDS need to verify their claims and ensure compliance before March 31, 2025. By doing so, they can avoid penalties and interest and make sure their tax returns are accurate.
If you receive a notice, don’t panic. Review your claims, make necessary corrections, and file an amended return if needed. By taking swift action, you can clear up any discrepancies and avoid penalties from the Income Tax Department.
