Home truth about submitting fake rent receipts to claim HRA deduction

Practice is illegal any may lead to heavy penalties, say tax experts

As the deadline for filing Income Tax returns nears, authorities have warned against using fake rent receipts to claim house rent allowance (HRA) deductions.

According to rules, taxpayers can claim a deduction only if the organisation they work for is paying them HRA. If an employee pays a rent of more than Rs 1 lakh, they are required to provide the PAN number of their landlord.

Refrain from submitting fake receipts

Submitting fake rent receipts when filing your income tax return (ITR) is a serious offence that can lead to heavy penalties and legal consequences. The Income Tax department is cracking down on such fraud by using artificial intelligence (AI) to detect discrepancies.

In this regard, the Annual Information Statement (AIS) Form and Form-26AS are matched along with Form-16.

The department matches the amount claimed under HRA with that sent to the landlord’s PAN number. All transactions related to PAN are written in an AIS form. In case a difference is detected between the two, a tax notice is sent to the individual from the I-T department, said Manikandan S, Tax Expert at Cleartax.

In case the company gives HRA and an individual claims annual rent of less than Rs 1 lakh, there is no need to furnish the PAN of a landlord. In this scenario, an individual can claim HRA up to Rs 1 lakh, which the tax department will not check, he said.

Does paying rent to relatives and claiming tax deductions amount to fraud?

Paying rent to relatives or immediate family members and claiming tax deductions is not considered fraud, as long as you genuinely do so and have documentary or digital proof of the transaction.

Landlords can periodically check their AIS to see if any rent income is listed that they are not aware of. If they find an unexpected rent entry, they can immediately alert the Income Tax department by disputing the transaction. This helps identify potential fake HRA claims.

Penalty for fake rent receipts

Using fake rent receipts can lead to penalties and legal repercussions under Section 270A of the Income Tax Act, of 1961.

Assesses may face penalties of up to 200 per cent of the tax payable on underreported income.

Potential charges of tax fraud and increased tax liability for both the taxpayer and the landlord are also there.