ITR Filings Under Form 16 Will Lead to Heavy Penalty & Reversal Of Benefits

Indians are masters in finding out ways to save their finances and one such lucrative option comes in the form of payment of taxes. Loopholes in the taxable income to lessen tax is one such factor, for which Indian taxpayers try all sorts of ways. These tax evaders try to gain one such tax benefit, by claiming fake House Rent Allowance (HRA), despite owning a house in the same town.
Genuine HRA does help, but many taxpayers submit fake rent receipts for filing Income Tax Return (ITR) to lower the taxable amount.
These tax evaders also abstain from declaring these details to their employers, who rigidly demand the rent receipts for including it in Form 16.
In this article, let’s discuss how fake rent receipts can rebound and make you pay more than your expectations.

About House Rent Allowance (HRA):

House Rent Allowance is the rent amount paid by an individual living in a rented place. Since it is paid from the salary of the individual, it benefits the individual, by lowering the yearly tax amount which they need to pay on housing.

How HRA Exemption is calculated?

The least amount from the below-mentioned criteria will be eligible for exemption of HRA.

• The actual HRA received from the employer
• Rent paid by the individual minus 10% of the salary amount (Basic Salary + Dearness Allowance (DA))
• For residents of metro city – 50% of the salary (basic salary + DA) and for residents of non-metro city – 40% of the salary (basic salary + DA).

Documents to be submitted for claiming HRA:

No documents are needed in filing ITR, and hence some taxpayers tend to take advantage of the situation.

But in the coming years, the Income-tax department has started noticing these fake HRA claims and hence is becoming more vigilant towards the same.

In case of suspicious claims, the income-tax officer can ask for a submission of other documents apart from rent receipts, rent agreement, and Form 12BB (application for HRA claim). If these documents are not submitted to the employer, then the employer will deduct TDS on the HRA amount.

For verification of the HRA receipt and to clear their doubts, the Income tax department may ask for the following:

• License agreement and copy of leave
• Electricity bill
• Water supply bills
• Document (agreement) from Housing Society
• Rent payment entry in bank statement
• ID proof (PAN card) of the landlord if the rent amount exceeds Rs. 1,00,000 per year.

Risks in submitting Fake Receipts:

At the beginning of the year, the majority of the employees must be receiving e-mails from their accounts department asking them to submit their investment declaration and provide the receipts for the same, before the year ends. Ensure to always provide the original receipts and never give fake proofs, since you are liable for all the fake receipts submitted by you.

False claimants of HRA should be aware of the fact that they are inviting trouble when they submit fake HRA receipts.

Example: A taxpayer falsely shows that he pays a rent of Rs. 8000 per month, i.e., Rs. 96,000 annually on HRA and is aware that there will be no need to reveal the ID or PAN details of the landlord (since the limit is at Rs. 1 lac per annum).

Taking these false claims into consideration, there are multiple amendments made in the format of Form 16. It is now in sync with the Income Tax Return format and both the documents can be electronically checked post-e-return filing of the applicant. The electronic data report will help to lower the graph of such fraudulent disparities.

Even if your rental receipts are genuine, but your employer has not specified the same in your Form 16, you are likely to get a notice from the Income Tax department.

So, any discrepancies will bring notices from the Income Tax department to your doorstep.

How will the Income Tax Department Track You?

The Income Tax department has ample ways to cross-check your fake receipts.

• When the Income Tax Return of the individual is picked up for scrutiny purposes and the individual is unable to provide evidence to prove his claims
• If the Income Tax department asks for the supporting evidence and the evidence provided by the individual is suspicious
• If the Income Tax department is hinted about the individual claiming a deduction based on fake receipts
• With improved technology, the Income-tax department keeps tabs on the claims to catch tax evaders.
• In the new Form 16, all the allowances (HRA, pension, leave salary, etc.) need to be specified in the form as separate entries. In case of any non-disclosure of allowance, you will be a suspect, and a notice demanding an explanation about the discrepancy will be issued.

In a nutshell, if the tax evader is unable to provide supporting documents for the same, it will be considered a punishable offense and he/she will have to bear the charges.

Penalty Charges:

The Income Tax department verification process is going to be more stringent and failure to submit the evidence can get your claimed exemption rejected by them. If they find that the claim has been manipulated, they can levy heavy penalties and additional taxes for under-reporting of income. Even previous benefits will be reversed and huge penalties will be levied by the Income Tax department.