Union Budget 2025: Submitting fake rent receipts? Here’s how the Income Tax Department can catch you!

As Finance Minister Sitharaman prepares for Budget 2025, taxpayers must be aware of how the Income Tax Department uses AI to detect fake

ZeeBiz WebTeam | Feb 01, 2025, 07:20 PM IST

As Finance Minister Nirmala Sitharaman gears up to present the Union Budget 2025 on Saturday, February 1—her eighth consecutive budget—taxpayers are eagerly awaiting potential tax policy changes. While both the old and new tax regimes provide legitimate ways to save on income tax, some individuals attempt to misuse exemptions by submitting fake rent receipts. However, with AI-driven scrutiny and advanced data analytics, the Income Tax Department has enhanced its monitoring systems to detect such fraudulent claims. Here’s how authorities identify fake rent receipts and why tax fraud can lead to serious consequences.

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Fake Rent Receipts Can Lead to Tax Penalties

Fake Rent Receipts Can Lead to Tax Penalties

Submitting false rent receipts to claim House Rent Allowance (HRA) deductions may invite strict action from the Income Tax Department.

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AI and Data Analytics Help Identify Fraud

AI and Data Analytics Help Identify Fraud

The I-T Department uses artificial intelligence and advanced data analytics to detect discrepancies in rent receipts submitted by taxpayers.

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PAN Verification of Landlords is Mandatory for High-Rent Claims

PAN Verification of Landlords is Mandatory for High-Rent Claims

If the annual rent exceeds Rs 1 lakh, the taxpayer must provide their landlord’s PAN details while claiming HRA.

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Mismatch with Form 16 and ITR Can Raise Red Flags

Mismatch with Form 16 and ITR Can Raise Red Flags

The I-T Department cross-verifies rent receipts with Form 16, bank statements, and ITR filings to detect fraudulent claims.

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Old Tax Regime: Understanding the Tax Slabs

Old Tax Regime: Understanding the Tax Slabs

  • Up to Rs 5 lakh – Nil tax
  • Rs 2.5-Rs 5 lakh – 5%
  • Rs 5 lakh-Rs 10 lakh – 20%
  • Above Rs 10 lakh – 30%

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New Tax Regime: Revised Tax Slabs

New Tax Regime: Revised Tax Slabs

The new tax regime introduced six tax slabs in 2024:

  • 0-Rs 3 lakh – Nil tax
  • Rs 3 lakh-Rs 7 lakh – 5%
  • Rs 7 lakh-Rs 10 lakh – 10%
  • Rs 10 lakh-Rs 12 lakh – 15%
  • Rs 12 lakh-Rs 15 lakh – 20%
  • Above Rs 15 lakh – 30%

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HRA Claims are More Beneficial Under the Old Regime

HRA Claims are More Beneficial Under the Old Regime

The old tax regime allows deductions for HRA, while the new tax regime does not offer this exemption.

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Taxpayers Must Provide Proof of Rent Payment

Taxpayers Must Provide Proof of Rent Payment

Apart from rent receipts, bank transaction records or rental agreements may be required to validate HRA claims.

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I-T Department Sends Notices for False Claims

 I-T Department Sends Notices for False Claims

If discrepancies are found, the tax authorities issue notices and may impose penalties on violators.

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Employers May Cross-Check Rent Receipts

Employers May Cross-Check Rent Receipts

Companies can verify rent receipts before approving HRA claims, further reducing chances of fraud.

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AI-Based Monitoring Tracks Repeated Fraud Attempts

AI-Based Monitoring Tracks Repeated Fraud Attempts

The I-T Department’s AI system flags taxpayers repeatedly claiming suspicious HRA deductions.

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Why Do Taxpayers Commit HRA Fraud?

Why Do Taxpayers Commit HRA Fraud?

Many taxpayers attempt to reduce their tax liability by submitting fake rent receipts to increase deductions.

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Penalties for HRA Fraud Can Be Severe

Penalties for HRA Fraud Can Be Severe

Falsifying tax documents can lead to fines, tax reassessment, and even legal action.

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How to Claim HRA Without Risk

How to Claim HRA Without Risk

Taxpayers should ensure legitimate rent payments, maintain proper documentation, and follow HRA rules to avoid penalties.

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The Future of AI in Income Tax Compliance

The Future of AI in Income Tax Compliance

With increasing automation, the I-T Department’s fraud detection capabilities will continue to improve, making it harder to escape scrutiny.

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