January remains crucial for salaried individuals, considering companies ask for investment proof. These could be in the form of Life Insurance Corporation (LIC) policies, Equity-Linked Savings Schemes (ELSS), other tax-saving schemes, tuition fee receipts or rent receipts.
Based on these documents, a company calculates the tax and deducts it from the salary for the next three months. The Income-Tax (I-T) department initiates the final deduction, which may also give an individual a tax refund.
It has been noticed that while submitting investment proof, a few people tend to furnish fake rent agreements and rent receipts in a bid to save more tax. However, indulging in such a malpractice could place you under the I-T department scanner.
The I-T department has taken cognisance of this existing practice wherein many individuals have been saving taxes in this way. However, the I-T department is mulling to crack its whip against this malpractice.
The I-T department has started despatching income tax notices to those who claim tax deductions by submitting fake rent receipts since last year.
With suitable help from Artificial Intelligence (AI) technology, the I-T department is trying to detect fake rent receipts. In this regard, the Annual Information Statement (AIS) Form and Form-26AS are matched along with Form-16.
Usually, all the transactions related to the Permanent Account Number (PAN) card are recorded in these forms.
At the time when a taxpayer claims House Rent Allowance (HRA) through rent receipt, the I-T department matches their claim with these forms, and in case they detect any difference, this is enough to raise their eyebrows.
As per a rule related to HRA, taxpayers can claim a deduction only if the company is paying them HRA. Also, in case the employee pays a rent amount over Rs 1 lakh, they are required to provide the PAN number of their landlord.
The I-T department matches the amount claimed under the HRA with the amount sent to the landlord’s PAN number. Generally, 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.
In case the company gives HRA and an individual claims annual rent of less than Rs 1 lakh, there is no requirement to furnish the PAN of a landlord. So, in such a scenario, an individual can claim HRA up to Rs 1 lakh, which the I-T department will not check.
Assuming that an individual has replied to the notice of the I-T department stating that the difference between the rent receipt and the landlord’s PAN transaction is due to payment of the rent amount in cash or some part of it in cash.
In such a scenario, the I-T department could also send a notice to the landlord seeking clarification, and their tax liability may increase in case the landlord states the truth. There is a possibility that an individual (tenant) may also be accused of fraud. So, there is a good reason enough to avoid submitting fake rent receipts.
Generally, the biggest reason for fraud related to HRA is that a lot of tax can be saved through it.
For instance, if an individual has shown the rent of their house for Rs 20,000 per month, which is Rs 2.4 lakh annually, one will not be directly taxed on this amount provided that they are getting HRA of at least Rs 2.4 lakh from the company.
However, in case an individual has paid less rent than this amount, they do not get a claim on the entire amount.
In such a scenario, many individuals think that they can save tax by submitting fake rent receipts. However, the I-T department has upped its game and is detecting such frauds related to the submission of fake rent receipts and initiating the process of sending income tax notices.
Rajiv is an independent editorial consultant for the last decade. Prior to this, he worked as a full-time journalist associated with various prominent print media houses. In his spare time, he loves to paint on canvas.
