It’s often seen that landlords also demand cash rent. While there’s no problem with paying rent in cash, it can sometimes result in a notice from the Income Tax Department, which you’ll have to respond to.
It’s often seen that people pay their house rent in cash. Sometimes for the tenant’s convenience, and sometimes at the landlord’s own request. But if you do this, be careful, because the Income Tax Department doesn’t approve of this practice.
In fact, if your income and expenses don’t match, the tax department can send you a notice. In such a case, you’ll need to prove that you actually paid the rent.
Pay rent online or by check, stay safe
Tax experts recommend that you always pay rent online or by check. This will provide you with solid proof that you paid the landlord the agreed amount each month.
If you pay rent in cash, there’s no record of it in your bank statement. In such a case, the Income Tax Department may notice a discrepancy between your income and expenses, and you could receive a notice.
What documents will be required when I receive an income tax notice?
If you accidentally paid rent in cash and the tax department sends you a notice, you’ll need to have some important documents ready to prove that you actually paid the rent.
1. Have a valid rent agreement
If you live on rent, it’s crucial to have a rent agreement. It must state the following:
- How much rent do you have to pay every month?
- If the rent is more than Rs 50,000, will TDS be deducted or not?
- Basic details of both the landlord and the tenant such as name, address, Aadhaar or PAN.
- Note: If the rent is above Rs 50,000, you must deduct 5% TDS and pay it to the landlord.
2. Don’t forget to keep the rent receipt
Rent receipts are crucial for claiming HRA.
This means that every time you pay rent, you must obtain a receipt from your landlord and keep it safely. When claiming HRA, you must present both the rent agreement and the rent receipt.
3. Keep bank statements or online records
If you pay rent using UPI, net banking, or a credit card, your bank statement will clearly show the record. This record will serve as proof if the tax department ever asks questions. If you pay in cash, you won’t be able to provide this proof.
- Advice from CAs and tax experts: Always pay rent digitally, so that the tax department does not have any suspicion.
4. Make sure to get the PAN of the landlord
If your annual rent exceeds ₹1 lakh, you must provide your landlord’s PAN (Permanent Account Number). This is used by the Income Tax Department to track who received the rent. If you provide an incorrect PAN or no PAN, you will not receive the full HRA benefit.
- Remember: For rents above ₹1 lakh, the landlord’s PAN is required. Incorrect PAN numbers can result in a tax notice.
Why are tax notices increasing?
Recently, the Income Tax Department has sent notices to many people who have shown rent but:
- Rent paid in cash.
- Wrong PAN of landlord filled.
- Rent receipt was not given.
- Rent payment was not reflected in the bank records.
Therefore, now the tax department relies more on digital payments.
Understand in easy language
Paying house rent in cash isn’t illegal, but it is certainly risky. If any discrepancies are found between your income and expenses, the Income Tax Department can issue a notice. In such a situation, you can only escape if you have solid proof of your rent payment.
Conclusion
In today’s times when everything is online, it’s wise to pay house rent digitally. This will not only allow you to reap tax benefits but also save you the stress of receiving notices. So, the next time you make a rent payment, remember to make the transaction online, not cash.
