In India, salaried workers submit their rent receipts to claim tax benefits under the house Rent Allowance (HRA). However, taxpayers frequently file fictitious rent receipts to save money. The Income Tax (IT) Department is stepping up its efforts to combat false claims, experts warn, and those found guilty might be fined up to 200% of the amount they misreported under Section 10(13A) of the Income Tax Act.
Taxpayers have been cautioned by chartered accountant Nitin Kaushik about the typical errors that can lead to scrutiny and how the IT Department validates rent claims.
The IT Department uses a variety of sources, such as Form 16, PAN information, and employer filings, to cross-check HRA claims.
The following are some of the main warning signs that may result in a tax notice:
No rent agreement: It raises questions when someone claims HRA benefits but, when questioned, is unable to produce a legitimate rent agreement.
False PAN information: If the annual rent exceeds ₹1 lakh, employees are required to present the landlord's PAN. PAN verification tools make it simple to identify instances in which a taxpayer supplies a false or inaccurate PAN.
Form 16 Mismatch: Employers use Form 16 to record HRA exemptions. The IT Department can point up an anomaly if an employee receives HRA benefits but it isn't shown on their Form 16.
Rent paid to relatives: Although it is legal to pay rent to parents or other family members, this must be supported by the appropriate paperwork, such as rent agreements and bank transfers. Tax scrutiny may result from cash transactions that lack receipts.
How should you respond to an IT notice?
Here's how to react if you get a notice about your HRA claim:
Provide legitimate documentation, such as bank statements demonstrating genuine rent payments, rent agreements, and rent receipts.
Verify the accuracy of your PAN information. If your landlord's PAN is needed, make sure it corresponds with official records.
Respond promptly: To avoid penalties, always respond by the deadline.
Although tax planning is wise, there can be severe consequences for falsifying or misreporting rent receipts. It's critical to maintain compliance and make sure all documentation is correct when claiming HRA benefits because the IT department is increasing its checks.
Taxpayers have been cautioned by chartered accountant Nitin Kaushik about the typical errors that can lead to scrutiny and how the IT Department validates rent claims.
The IT Department uses a variety of sources, such as Form 16, PAN information, and employer filings, to cross-check HRA claims.
The following are some of the main warning signs that may result in a tax notice:
No rent agreement: It raises questions when someone claims HRA benefits but, when questioned, is unable to produce a legitimate rent agreement.
False PAN information: If the annual rent exceeds ₹1 lakh, employees are required to present the landlord's PAN. PAN verification tools make it simple to identify instances in which a taxpayer supplies a false or inaccurate PAN.
Form 16 Mismatch: Employers use Form 16 to record HRA exemptions. The IT Department can point up an anomaly if an employee receives HRA benefits but it isn't shown on their Form 16.
Rent paid to relatives: Although it is legal to pay rent to parents or other family members, this must be supported by the appropriate paperwork, such as rent agreements and bank transfers. Tax scrutiny may result from cash transactions that lack receipts.
How should you respond to an IT notice?
Here's how to react if you get a notice about your HRA claim:
Provide legitimate documentation, such as bank statements demonstrating genuine rent payments, rent agreements, and rent receipts.
Verify the accuracy of your PAN information. If your landlord's PAN is needed, make sure it corresponds with official records.
Respond promptly: To avoid penalties, always respond by the deadline.
Although tax planning is wise, there can be severe consequences for falsifying or misreporting rent receipts. It's critical to maintain compliance and make sure all documentation is correct when claiming HRA benefits because the IT department is increasing its checks.