ITR Filing: Submitting fake rent receipts? You can be fined up to 200% of the tax liability on misreported income, check details

Income Tax exemptions for rent payments have been a boon for salaried individuals, allowing them to claim tax deductions up to Rs 1 lakh without disclosing their landlord's PAN as per Section 10(13A) of the Income Tax Act, 1961. However, some individuals have manipulated this provision to their advantage, leading to a surge in notices from the tax department demanding validation for claimed tax exemptions.

If the Income Tax Department detects discrepancies in deductions claimed for house rent, erring taxpayers could be fined up to 200 per cent of the total tax liability.

How to claim HRA deduction legally?

To avoid any run-ins with the tax department, it's recommended that taxpayers ensure honest compliance with the tax laws. Practical measures to achieve this include using a valid rental agreement, preferring online or cheque payments for rent, mentioning the landlord's PAN for payments exceeding Rs 1 lakh, maintaining records of utility bill payments, and obtaining a PAN declaration from the landlord if it is not readily available.

When obtaining a rent receipt, it is crucial to include specific details like the date of payment, the landlord's name and address, the tenant's name, the paid amount, and the rental period covered by the payment. The receipt must bear the landlord's signature and stamp, serving as verifiable proof of payment. Accuracy of all information on the receipt is non-negotiable to avoid any potential legal ramifications.

In the digital age, rent receipts can be generated electronically using dedicated software or online platforms. This approach not only simplifies the tracking of rent payments but also ensures accurate information on the receipt. However, it's essential to authenticate any electronically generated rent receipts and confirm that they carry all the necessary details, including the signatures of both the landlord and the tenant.

Penalties for misreported rent payment

Upon detecting any inconsistencies, the Income Tax Department can issue a notice asking for valid documents, kick off an inquiry, or revoke the House Rent Allowance (HRA) exemption. The assessing officer can request proof of claimed tax deductions. If the taxpayer fails to furnish the required documents, the claimed exemption could be declined. Such individuals may then face action in the form of additional taxes, interest, and penalties.

To curb such practices, the Income Tax Department may impose a penalty of up to 200 per cent on the misreported income if discrepancies are found. This is in line with Section 270A of the Income Tax Act, 1961, where underreported income may attract a 50 per cent penalty, while misreported income incurs a 200 per cent penalty. Instances of such misconduct include submission of fake rent receipts or fraudulent declaration of income and deductions.