Income Tax Department Clarifies: No Special Drive To Reopen HRA Mismatch Cases

The Tax Department, or the Central Board of Direct Taxes, clarified on Monday that the drive to issue notices and reopen a "small number" of cases with mismatches between the rent paid by a salaried employee and the rent received by the recipient in FY21 was not part of a special drive for the same, as was reported by some media in the public domain. 

The department noted that a data analysis for high-value cases revealed the mismatch.

“It is stated that any apprehensions about retrospective taxation on these matters and re-opening of cases on issues pertaining to HRA claims are completely baseless,” the tax department clarified.

Further, it was added that this verification was done in a small number of cases without re-opening the bulk of cases, especially since the updated return for FY 2020–21 (AY 2021-22) could have been filed by the taxpayers concerned only until March 31, 2024.

The objective of the e-verification was to alert cases of mismatches of information for FY 2020–21 only without affecting the others, the department said.

The CBDT said certain instances of mismatching information as filed by the taxpayer and as available with the Income Tax Department have come to the department's attention as part of its routine exercise of data verification.

In such cases, the department has alerted taxpayers so that they can take corrective action.

HRA forms part of salary income, or CTC, and is calculated as taxable income. However, if an employee lives in rented accommodation, he or she can claim income tax exemption for HRA received during the year by submitting valid rent receipts.

However, the tax exemption is not available if taxpayers opt for the new tax regime, which doesn't have exemptions. The new tax regime is the default tax regime from FY25, which is the upcoming assessment year.

With inputs from PTI