05 February 2014
Husband & Wife Both is a Govt Employee. They continued earning HRA since their employment. Now they both have required to refund excess HRA drawn of Rs. 36000/- as per eligibility computation combined together. As a matter of fact, one assessee refunded the amount to Treasury by A/c payee cheque from her own a/c in full. Her current employer refused to adjust the said payment from the income of current FY. Hence, though her current year's income is low, she is forced to pay tax on 36000/- also which could have been avoided by lowering the income.
Pls advice whether she is eligible for the benifit and if yes, whether if full or for her own part of excess withdrawal.
05 February 2014
Full amount of 36000/- pertains from 2005-06 till 2012-13 which she returned in FY 2013-14. Please note that the amount is for both of them. Please revert.
31 July 2024
When dealing with excess House Rent Allowance (HRA) that was drawn and later required to be refunded, the treatment for tax purposes can be somewhat complex. Here's a detailed explanation for your query:
### **1. HRA Refunds and Tax Treatment**
**Refund of Excess HRA:** - If HRA was claimed in excess of what was actually allowable based on the rent receipts and the conditions for exemption, the excess HRA should be refunded to the employer or the concerned authority. - The refund should ideally be made in the year when it was determined that the HRA claimed was excessive.
**Tax Treatment of HRA Refund:** - **For the Financial Year When Refund is Made:** - When excess HRA is refunded in a subsequent year, it is not automatically adjusted against the HRA claimed in previous years. - The excess HRA refund made in FY 2013-14 should be reported in the income of the year in which the refund was made, i.e., FY 2013-14. - This refund amount is treated as income in the year of refund, which is why the employee might have to pay tax on it in the year it was refunded.
### **2. Steps to Address the Issue**
**Adjusting Excess HRA Refund:** 1. **Current Employer’s Refusal:** - If the current employer refuses to adjust the excess HRA refund from the current year's income, the employee must report the excess HRA refund as income in the current financial year (FY 2013-14). - This income should be reported as part of the total income in the income tax return for FY 2013-14.
2. **Claiming Tax Benefit:** - Since the HRA refund pertains to the years 2005-06 to 2012-13, the employee should ideally have requested an adjustment or refund from the income tax department for those years. - The employee can approach the Income Tax Department to request an assessment for the past years where excess HRA was claimed, and possibly obtain a refund for the excess tax paid due to the incorrect HRA claims in those years.
**Refund for the Full Amount:** - The full amount of ₹36,000 pertains to both husband and wife combined. If the refund was made by one spouse, the refund should be allocated based on their respective shares. - If the refund was for excess HRA claimed jointly, then both spouses may need to account for their portion of the excess HRA in their respective tax returns.
### **3. Recommended Actions**
**1. Document the Refund:** - Ensure that all documentation regarding the HRA refund, including proof of refund (cheque, receipts, etc.), is maintained.
**2. File an Income Tax Return:** - Report the excess HRA refund in the income tax return for the year in which the refund was made.
**3. Approach Income Tax Authorities:** - If the excess HRA refund affects the taxability of previous years, you may need to file a rectification request or claim a refund from the Income Tax Department for the years when the excess HRA was claimed.
**4. Consult a Tax Professional:** - It is advisable to consult a tax professional to guide you on the exact treatment and help you with any necessary rectification or refund requests.
**Summary:** The excess HRA refund is taxable in the year of refund if it could not be adjusted by the employer in the current year. Properly report the refund in the income tax return and seek a rectification or refund claim for previous years if applicable.
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