Penalty up to 200% of Tax Possible for Misreported Income in ITR

With the Income Tax Returns (ITR) filing deadline ending on July 31, 2023, the Income Tax Department is stepping up its measures to address taxpayers trying to evade taxes by using fraudulent rent receipts. Salaried individuals have been under scrutiny by the tax department for presenting inaccurate or deceptive ITRs. The department takes proactive action against those who submit fabricated rent receipts or false donation claims, identifying and flagging such cases.

ITR Filing: Tax exemptions for rent

According to Section 10(13A), salaried individuals have been granted the privilege of claiming tax exemptions for rent expenses of up to ₹1 lakh without the obligation to disclose the Permanent Account Number (PAN) of their landlords. This provision enables eligible taxpayers to avail of this benefit while fulfilling their tax obligations.

Unfortunately, certain individuals may have been exploiting this provision, causing a rise in cases where taxpayers receive notices from the tax department seeking evidence to verify their tax exemptions.

To thoroughly examine the legitimacy of such claims, the Income Tax Department is implementing a comprehensive strategy. They are conducting a 360-degree profiling of individuals, analysing data from ITRs, and cross-referencing it with information gathered from external sources. This includes seeking verifications directly from the taxpayers themselves.

If irregularities are found, the tax department may notify these taxpayers. If it is determined that income has been under-reported, the department has the right to impose a penalty of up to 200% of the tax applicable to the misreported income.

However, if you come across such misreported income in your ITR, you can file a revised return and rectify it by December 31, 2023, and avoid the penalty.

Top reasons for receiving an income tax notice

The Income Tax Department may issue an income tax notice for various reasons based on different provisions. Commonly, taxpayers receive such notices due to reasons like late or incorrect filing of income tax returns, erroneous tax refund claims, and other similar factors. These income tax notices are issued by the tax department under sections 143(1), 142(1), 139(1), 143(2), u/s 156, Section 245, and Section 148.

For any clarifications/feedback on the topic, please contact the writer at samiksha.swayambhu@clear.in