Salaried Employees Can No Longer Produce Fake Receipts To Lower Tax Burden

In case you have been filling fake receipts to lower tax burden, the Income Tax (IT) department has called your bluff and has introduced new rules to deny such claims.

Earlier, salaried employees could lower tax burden, claiming House Rent Allowance (HRA) from the employer by paying (fake) rent to family members or friends.

HRA is given by the employer to the employee to meet the expenses of rent of accommodation which the employer uses as a residence. Through Form 12 BB of the IT department, the employer’s TDS (Tax Deducted at Source) is adjusted so that no tax is paid on HRA.

For as long as one can remember, producing fake property rent receipts, often from friends, family members or relatives, has been an easy method to lower tax burden. Previously, the IT department only asked for the submission of rent receipts as proof of tenancy, and even when the rent was paid to family members, HRA was allowed.

As reported by The Economic Times, this minor transgression, which was previously overlooked, will now be subject to scrutiny as the IT department can insist on proof of genuine tenancy from the taxpayer.

Leave and licence agreement, letter to the housing co-operative society informing about the tenancy, electricity bill, water bill etc, count as proof of genuine tenancy which the assessing officer can now demand, as per a recent tribunal ruling.

The ruling comes as many salaried employees, staying with family, submit fake rent receipts signed by a family member. There are also employees who show the amount higher than the actual rent paid, or, the person may be staying separately but claiming to pay rent to a relative owning another property in the same city.

“Technology and stricter reporting system may make it easier for the (income tax) department. For instance, there was a time when many never bothered to pay tax on interest earned from bank fixed deposits. Today, it’s almost impossible. In case of HRA (House Rent Allowance) exemption, the assessing officer may cross check whether the address mentioned in the ITR form is the same as the property on which rent is paid,” said a tax officer to The Economic Times

The Tribunal ruling comes a few months after the centre’s decision to cap the loss on property bought with borrowed money to Rs 2 lakh and the balance unabsorbed loss from house property to be carried forward for subsequent eight years to be set off.

The Logical Indian welcomes the move by the IT department as loopholes in the previous regulation are now plugged and the leeway for misuse has been blocked.