Fake rent receipts will no longer get you tax exemptions. Here's why
If you are among the several salaried employees who claim tax exemptions by furnishing fake house rent receipts, this may come as a shock to you. The Income Tax department, it is learnt, is now looking to turn on the heat against this widespread practice and could soon insist on proof to establish that the tax payer is indeed a genuine tenant and stays in the property mentioned in the rent receipt.
Here is what is fuelling this change. A fresh ruling by the Income Tax Appellate Tribunal now empowers assessing officers to seek proof before allowing a lower taxation on grounds of rent receipts furnished by an employee. The documents that the taxman may seek include leave and licence agreement, letter to the housing co-operative society informing about the tenancy, electricity bill, water bill etc.
"The ITAT (Income Tax Appellate Tribunal) ruling has now laid down the criteria for the assessing officer to consider the claim of a salaried employee and if necessary question its justification. This will put the onus on the salaried class to follow the rules in availing the tax rebate," Dilip Lakhani, senior tax advisor, Deloitte Haskins & Sells LLP, told Economic Times.
The practice of furnishing fake rent receipts to claim tax exemptions has long existed. Even tax authorities have overlooked this particular facet as minor transgressions, until now.
The precedent for such practice being followed was set by a ruling of the ITAT in Mumbai, which disallowed the HRA exemption claim of a salaried individual for rent paid to her mother. Tax officials say the department may now look for proof to cross-check whether the address mentioned in the ITR form is the same as the property on which rent is paid.
Needless to say, any such move will have a wide impact. Besides the instances of individuals have paid no rent at all, even genuine tenants may mention amounts higher than what' they actually pay. There are also several instances where a person may be staying separately but claiming to pay rent to a relative owning another property in the same city; or, one of member of the family claiming a loan repayment deduction while another submitting a false rent receipt to evade tax.
Given the widespread practice of paying tax on only a small slice of HRA, it's is unclear how far tax officials would go in questioning such claims and pinning down salaried employees.