Income Tax Department Uncovers PAN Fraud in HRA Claims, Thousands of Cases Detected

The income tax department has uncovered a PAN fraud scheme involving the misuse of permanent account numbers (PANs) by individuals to claim house rent allowance (HRA) falsely. Thousands of high-value cases, amounting to Rs 10 lakh or more, have been detected, leading to further investigations and potential legal repercussions.

The income tax department has uncovered a fraudulent scheme involving the unauthorized use of permanent account numbers (PANs) by individuals to falsely claim house rent allowance (HRA) deductions. Thousands of high-value cases, with amounts exceeding Rs 10 lakh, have been detected so far.

The fraudulent activities came to light when authorities discovered alleged rent receipts amounting to around Rs 1 crore by an individual, prompting further investigation into the rampant misuse of PANs. Shockingly, instances were found where employees of certain companies used the same PAN to claim tax deductions.

Upon confrontation, individuals whose PANs were used to claim “rental income” denied any knowledge of the transactions. Subsequent probes revealed that these individuals had not received the rent shown against their names.

Tax officials have stated that the department is taking action against employees who made bogus claims, aiming to recover the tax owed. It remains unclear whether legal action will be taken against them. 

This case highlights another instance of PAN misuse without the holder’s knowledge, further complicated by the misuse of HRA exemptions to evade tax on rental income.

With most financial transactions linked to PANs, tax authorities can easily track fraudulent claims using advanced technology and data analytics. Such actions may result in tax payments, penal interest, penalties, and even prosecution in extreme cases.

Experts advise that genuine rental transactions should be conducted through cheques or electronic transfers to demonstrate authenticity, with the rental income duly reported in tax returns. 

While employers are not expected to conduct deep investigations, they are responsible for implementing reasonable checks and balances when verifying proof of rent paid for HRA exemptions. In some cases, employers may terminate employees found submitting fake claims for HRA or other allowances.