ITR Filing Tips: Beware of Fake Rent Receipts as March 31 Draws Near – How Income Tax Catches Fraud
ITR Filing Tips: Beware of Fake Rent Receipts as March 31 Draws Near – How Income Tax Catches Fraud
With the March 31 deadline looming, tax season is in full swing. While many people are diligently seeking legitimate ways to save on their taxes, some are tempted by less ethical methods. One common tactic is claiming fake rent receipts to reduce taxable income. This practice, though tempting, is increasingly risky as the Income Tax Department is actively cracking down on such fraudulent claims.
This year, the department is using sophisticated methods to detect fabricated rent receipts in Income Tax Returns (ITR). Let’s explore how they uncover these false claims and the consequences for those caught in the act.
AI Detects Fraudsters:
The Income Tax Department is embracing the power of Artificial Intelligence (AI) to combat tax fraud. They’re using AI to identify fake rent receipts by cross-checking information from various sources, including Form 16 (salary details), AIS (Annual Information Statement), and Form 26AS (tax credit statement). This cross-referencing allows the department to spot inconsistencies and potential red flags related to fraudulent rent claims.
The discrepancy is quickly detected:
The Income Tax Department leverages the power of AI to analyze these forms, which contain detailed records of all transactions linked to a taxpayer’s PAN card. When someone claims House Rent Allowance (HRA) using rent receipts, the department automatically compares this information with the data in the forms. Any inconsistencies, such as a mismatch in rent amounts or discrepancies in the landlord’s details, immediately trigger an alert. This entire process, powered by AI, happens instantly and without human intervention.
When is the landlord’s PAN needed?
To claim the House Rent Allowance (HRA) deduction, you must be receiving HRA from your employer. Additionally, if your annual rent payments exceed ₹1 lakh, you are required to provide your landlord’s PAN number to the Income Tax Department. This rule helps ensure the authenticity of rent receipts and prevents fraudulent claims.
Verifying the Claim Amount Against the PAN
The Income Tax Department uses AI to compare the amount of House Rent Allowance (HRA) you claim on your tax return with the actual amount your employer paid to your landlord. They do this by checking the Annual Information Statement (AIS) form, which records all transactions related to your PAN. If the amounts don’t match, the department will send you a notice asking for an explanation.
No Verification for Rent Claims Below Rs.1 Lakh
If your company provides HRA and you pay rent of less than ₹1 lakh annually, you don’t need to provide your landlord’s PAN. This means you can claim up to ₹1 lakh in HRA without the Income Tax Department verifying the legitimacy of your claim.
Why is Fraud Committed on HRA?
HRA fraud is a major concern because it allows individuals to significantly reduce their tax liability. By inflating their rent payments, people can avoid paying taxes on a large portion of their income. For example, if someone claims a monthly rent of ₹20,000 (₹2.4 lakh annually), they can avoid paying taxes on that amount. This has led to the widespread creation of fake rent receipts. While the Income Tax Department is cracking down on such fraud, the new tax regime with a tax-free income limit of ₹12 lakh might reduce the incentive for HRA claims and potentially decrease fraudulent activities in the future.
