When Should You Submit Form 10BA to Avoid Penalties?

 

Form 10BA is an essential tax-related document for individuals claiming deductions under Section 80GG of the Income Tax Act, 1961. This section is applicable to taxpayers who pay rent for their accommodation but do not receive House Rent Allowance (HRA) as part of their salary package. The form acts as a declaration that the taxpayer satisfies the conditions under Section 80GG, enabling them to claim deductions on rent paid.

Given the stringent tax rules in India, non-compliance or delayed submission of Form 10BA can lead to penalties. Understanding when and how to file this form is vital to avoid financial setbacks. This article delves into the timeline and procedure for submitting Form 10BA, factors affecting its submission, and the subsequent implications of failing to comply.

 What is Form 10BA?

Form 10BA is a declaration provided by taxpayers to claim deductions under Section 80GG. This deduction is specifically meant for individuals who:

1. Do not receive HRA from their employer.

2. Pay rent for housing.

3. Do not own a residential property themselves or jointly within the same city where they are employed or carrying out business activities.

The maximum deduction permissible under Section 80GG is ₹5,000 per month or 25% of the taxpayer's total income, whichever is lower. This deduction considers the following formula:

Deduction = Minimum of ₹5,000 or 25% of Adjusted Gross Income or Total Rent Paid - 10% of Adjusted Gross Income

For example, consider the case of an individual with an annual salary of ₹6,00,000 and rent payment of ₹10,000 per month. Here’s how the deduction would be calculated:

- Adjusted Gross Income = ₹6,00,000 – Standard Deduction ₹50,000 = ₹5,50,000

- Options for deduction:

- ₹60,000 per year (₹5,000 x 12 months)

- ₹1,37,500 (25% of ₹5,50,000)

- ₹84,500 (₹1,20,000 total rent paid – ₹55,000 (10% of Adjusted Gross Income))

The deduction will be the lowest, which is ₹60,000 in this case.

 Why is Filling Form 10BA Necessary?

Form 10BA is compulsory for taxpayers claiming deductions under Section 80GG to confirm that they meet the required criteria. Through this declaration, taxpayers affirm:

- They do not claim deductions for rent expenses under any other provision of the tax law.

- They or their spouse do not own any property within the same city where they reside and work or conduct business.

- HRA is not part of their income.

Failure to submit Form 10BA along with appropriate documentation might lead to rejection of the deduction claim, potentially exposing the taxpayer to penalties and fines under Indian tax laws.

 When Should You Submit Form 10BA?

The submission of Form 10BA is tied to the financial year for which deductions are being claimed. Tax rules require Form 10BA to be filed before completing the Income Tax Return (ITR) process. Practically, this means the form should be submitted on or before July 31 (the deadline for filing ITRs for individual taxpayers for the relevant assessment year).

 Key Deadlines

- Financial Year (FY): April 1 - March 31

- Assessment Year (AY): The year immediately following the financial year (e.g., FY 2023-24 corresponds to AY 2024-25).

- Form 10BA filing deadline: Before or along with ITR filing by July 31 of the AY.

For example, if a taxpayer wants to claim deductions for rent paid during FY 2023-24, they should file Form 10BA before July 31, 2024, to avoid penalties.

 Implications of Delayed Submission

Failure to submit Form 10BA before the stipulated timeline can result in the following outcomes:

1. Disallowance of Deductions: The taxpayer might not be able to claim Section 80GG benefits, leading to higher taxable income and a larger tax liability.

2. Penalty Under Section 234F:

If Form 10BA is not submitted and ITR is filed after the due date, taxpayers may incur penalties of:

- ₹1,000, if their taxable income is less than ₹5,00,000.

- ₹5,000, if their taxable income exceeds ₹5,00,000.

This penalty is separate from interest charged under Sections 234A, 234B, and 234C.

 Example of Penalties

Consider a taxpayer earning ₹8,00,000 annually while paying rent of ₹15,000 per month. Under Section 80GG, they qualify for a deduction of ₹60,000 (lowest amount as calculated earlier). If they fail to submit Form 10BA before filing ITR, their taxable income increases by ₹60,000 to ₹8,60,000. Assuming a tax rate of 20%, the additional tax liability would be ₹12,000. Penalty for delayed ITR filing of ₹5,000 (under Section 234F) could further escalate the financial burden to ₹17,000.

 Role of EPF Contributions

While EPF (Employees' Provident Fund) is unrelated to Form 10BA directly, it can impact overall taxable income and savings under Section 80C. EPF deductions reduce taxable income, influencing the calculation of rent deduction under Section 80GG.

For instance:

- If EPF contributions total ₹50,000 annually and an individual earns ₹6,00,000 per year, their adjusted gross income for Section 80GG reduces to ₹5,50,000, as EPF contributions qualify under Section 80C.

 How to File Form 10BA Online?

The Income Tax Department facilitates the submission of Form 10BA via the e-filing portal. Taxpayers must follow these steps:

1. Log in to the Income Tax e-filing portal.

2. Navigate to the "e-File" menu and select "Income Tax Forms."

3. Choose "Form 10BA" from the list of income tax forms.

4. Fill in relevant details, such as:

- Name, PAN, and address of the taxpayer.

- Rent details and landlord's information.

- Declaration affirming Section 80GG conditions are met.

5. Submit the form.

Form 10BA is linked to the taxpayer’s PAN and forms part of tax records for the financial year.

 Disclaimer

This article is for informational purposes only. Taxpayers must analyze the pros and cons of all investments and deductions in the Indian financial market. Consult a certified tax professional to understand individual tax obligations and related risks.

 Summary: 

Form 10BA is crucial for taxpayers claiming deductions under Section 80GG for rent payments when HRA isn’t part of their salary. To avoid penalties, Form 10BA must be submitted on or before July 31 of the relevant assessment year, coinciding with ITR filing deadlines. Delaying submission can result in the loss of the deduction claim, increased tax liability, and penalties under Section 234F.

By filing Form 10BA on time and ensuring compliance, taxpayers can claim deductions up to ₹60,000 annually, based on rent paid and adjusted gross income. Delays or non-compliance can result in higher taxable income and penalties ranging from ₹1,000 to ₹5,000, depending on taxable income brackets.

Taxpayers should also factor in EPF contributions and other deductions under Section 80C when calculating adjusted gross income. While the process for filing Form 10BA is straightforward via the Income Tax Department’s e-filing portal, individuals should review tax-related documentation and seek professional advice for accuracy and compliance.