Punishment For Fake Rent Receipts & HRA Claims
Fake Rent Receipts & HRA Claims- The income tax department is investigating a number of paid taxpayers for, among other things, filing income tax returns with fictitious rent revenues from close relatives. The government allegedly sent notices to these individuals requesting them to submit documentation in support of their claim of tax exemption. These notices are deliver in order to seek tax deductions on housing allowances for salaried individuals under Section 10 (13A). If the department discovers any inconsistencies, it may levy a fine of up to 200% of the tax that applies to the income that was incorrectly reported.
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What exactly are rent receipts?
Rent receipts serve as documentation that a renter has paid rent to a landlord. These serve as additional documentation for tax deductions related to the HRA portion of your compensation. But in recent years, there have been multiple instances when employees have fabricated rent receipts in order to benefit from the HRA. Legal repercussions for this manipulation could be very serious.
What fake / bogus rent receipts?
The IT Act of 1961 states that HRA provided by the employer is not taxable, subject to an acceptable ceiling calculated using the employee’s real rent payment, basic wage, and HRA. Therefore, HRA greatly lowers the employees’ effective tax outlay.
How to create a fake rent receipt
In order to pass them off as authentic receipts, tenants will occasionally create phoney rent receipts utilizing online rent receipt generators or by filling out a rent receipt template and signing it in the name of a fictitious landlord.
If the annual rent payment exceeds Rs. 1 lakh, the landlord’s PAN number must also be included in the rent receipt. Many times, those who use fraudulent rent invoices fail to include the PAN detail or include the incorrect PAN detail. Which is discovered during the verification.
Even though they own a home in the same city, some employees present the rent receipt to claim HRA calculation and HRA exemption.
There is now no legal prohibition against someone renting out a room from a parent or other relative. It is required to provide supporting documentation for any tax exemption claims. To claim HRA benefits, many employees, however, fabricate the rental agreement & rent receipt.
Punishment for fake rent receipts
The income tax division uses technology to keep track of your files and will immediately send a legal notice requesting proof in the event that any dispute deductions have been claim.
The taxman will not accept the claimed exemption if you don’t provide any supporting documentation. However, if the IT division determines that your statements are false, you could face fines for under- or over-reporting your income.
A fabricated rent receipt could subject the employee to severe fines and perhaps legal repercussions. Let’s explore the numerous penalties for falsifying a rent receipt.
Depending on the amount of rent & the type of forgery, the severity of the punishment can change. Penalties for creating fake rent receipts include those listed below:
Legal notice
The government may send a notification requesting proper papers in response to a data mismatch, start an investigation, or revoke the HRA exemption.
The assessing officer may request documentation supporting tax deduction claims. The authority may deny the requested exemption if the claimant does not provide the necessary documentation. These people can also be liable for further fines, penalties, and taxes.
Penalty on tenant of up to 50%
If the assessee underreports their income, the assessing officer may levy a penalty of 50% under Section 270A of the I-T Act, 1961. This is applicable to anyone who knowingly presents fake invoices or receipts to artificially boost their revenue. In addition, according to sections 234A, 234B, and 234C of the income tax code, interest must be paid.
Penalty of up to 200% for underreporting income
The government may impose a fine of up to 200% of the tax due on the income that was incorrectly declares if the income is under-report.
The income tax department’s verification
The IT department checks rent receipts in a number of methods, including the ones listed below:
- While HRA is claim by producing the rent receipt, there is no rental agreement.
- Incorrect or fictitious PAN information about the landlord is listed on the rent receipt.
- Employer failure to declare HRA benefit on Form 16
- The employee used a rent receipt provided by a close relative to file a claim for HRA in the absence of valid supporting evidence.
The employee must reply within the allotted time after receiving the department’s notice. If the department has request supporting documentation, it must be delivers right away in order to back up the claim.
The agency has also implemented stringent steps to address the instances of HRA claims using fraudulent rent receipts. In order to keep an eye on such fraud, it has established new ITR (income tax returns) forms that allow taxpayers to enter particular data on allowances by selecting it from the dropdown column and the revised Form 16.
The new approach requires that allowances (such HRA and LTA) be mention individually in Form 16, ensuring system transparency. To substantiate this, supporting documentation that detail the financial transactions associate with the paid rent must be presented.
Employers are responsible for looking out for fake rent receipts
The tax department may request the employer to provide legitimate documentation for the tax deducted at source under Section 192 of the Income Tax Act in order to verify the accuracy of the papers presented and during the tax return verification process. Rent receipts sent to the employer without supporting documentation. Such as a lease or payment records, may be the subject of an HRA fraud investigation by the IT department.
The Income Tax Appellate Tribunal (ITAT) contends that the res gestae principle (the start-to-end duration of a criminal) allows for the rejection of these bogus HRA claims. To establish that the transaction of hiring of premises was genuine and occurred during the specified period, the assessee must produce any proof that arises during routine hiring of premises, including leave and licence agreements, letters to society notifying of his/her tenancy, rent payments through banks, cash payments supported by verified sources, cheque payments for electricity & water bills and any correspondence arising during the tenancy period.
Things to remember to prevent charges for a fake rent receipt
In order to prevent charges connected to fraudulent rent receipts, keep in mind the following:
- Obtain a legal contract with the landlord.
- Consider making your rent payment online or by cheque.
- If the annual rent payment exceeds Rs. 1 lakh, request the landlord’s PAN information from the rent receipt.
- Tenant is require to keep a record of all utility payments made.
- Form 60 should be properly fill out and accompanied by a declaration stating that the landlord does not have a PAN.
- Make sure the information on your rent receipt matches what is on the relative’s ITR when requesting a rent receipt from them.
How do you create genuine rent receipts?
Today, you may generate a rent receipt online for free thanks to a number of virtual service providers. Including the Housing Edge platform. Simply visit these websites, complete the required fields, and generate free online rent receipts. In the part after this, we’ll go over how to create an online rent receipt step-by-step.
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