Tax Tips: Do you pay house rent in cash? Then keep these four documents ready, as you could receive an Income Tax notice..

It's often seen that people pay their house rent in cash. Sometimes for the convenience of the tenant, and sometimes at the landlord's own request. But if you do this, be careful, as 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 believe that rent should always be paid 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 if you 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. These documents will prove that you actually paid the rent.

1. Keep 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 each month?

If the rent is more than ₹50,000, whether TDS will be deducted.

Basic details of both the landlord and tenant, such as name, address, Aadhaar, or PAN.

Note: If the rent is above ₹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 the landlord and keep it safe. When claiming HRA, you must show both the rent agreement and the rent receipt.

3. Maintain bank statements or online records
If you pay rent through 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.

CAs and tax experts advise: Always pay rent digitally to avoid suspicion from the tax department.
4. Ensure you obtain the landlord's PAN (Permanent Account Number)
If your annual rent exceeds ₹1 lakh, you must provide the landlord's PAN. This is used by the Income Tax Department to track who receives the rent. If you provide the wrong PAN number or no PAN at all, you will not receive the full HRA benefit.

Remember: For rents above ₹1 lakh, providing the landlord's PAN is mandatory. 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 reported rent, but:

Paid the rent in cash.
Filled in the landlord's incorrect PAN.
Did not provide a rent receipt.
Rent payment not reflected in bank records.

That's why the tax department now places more trust in digital payments.

In simple terms,
Paying house rent in cash isn't illegal, but it is certainly risky. If any discrepancy is detected between your income and expenses, the Income Tax Department can issue a notice. You can only avoid this if you have solid proof of rent payment.

Conclusion
In today's world, when everything is online, it's wise to pay house rent digitally. This will not only allow you to avail tax benefits but also avoid the stress of receiving notices. So next time you make a rent payment, remember – do the transaction online, not in cash.

Disclaimer: This content has been sourced and edited from Zee Business. While we have made modifications for clarity and presentation, the original content belongs to its respective authors and website. We do not claim ownership of the content.