Planning to submit fake rent receipts to claim HRA? Here’s how Income Tax dept catches fraudsters

Salaried employees in India claim tax benefits under House Rent Allowance (HRA) by submitting rent receipts. However, in an attempt to save money, tax-payers may often resort to submitting fake rent receipts. 

Experts warn that the Income Tax (IT) Department is cracking down on fraudulent claims, and those caught could face a penalty of up to 200% of the misreported amount under Section 10(13A) of the Income Tax Act.

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Chartered Accountant Nitin Kaushik has warned taxpayers about how the IT Department verifies rent claims and the common mistakes that can trigger scrutiny.

The IT Department cross-checks HRA claims through multiple sources, including Form 16, PAN records, and employer filings.

Here are some of the key red flags that can attract a tax notice:

No rent agreement – If an individual claims HRA benefits but fails to provide a valid rent agreement when asked, it raises suspicion.

Fake PAN details – Employees must provide the landlord’s PAN if the annual rent exceeds ₹1 lakh. If a taxpayer provides an incorrect or fake PAN, it can be easily detected through PAN verification systems.

Mismatch in Form 16 – Employers report HRA exemptions in Form 16. If an employee claims HRA benefits but their Form 16 doesn’t reflect it, the IT Department can flag the inconsistency.

Rent paid to relatives – While paying rent to parents or relatives is allowed, it must be backed by proper documentation, such as bank transfers and rent agreements. Cash transactions without receipts can lead to tax scrutiny.

What to do if you receive an I-T notice?

If you receive a notice regarding your HRA claim, here’s how to respond:

Submit valid proof – Provide rent agreements, rent receipts, and bank statements showing actual rent payments.
Ensure PAN details are accurate – If your landlord’s PAN is required, ensure it matches official records.
File a timely response – Always reply within the deadline to avoid penalties.

While tax planning is smart, misreporting or fabricating rent receipts can lead to hefty penalties. The I-T department is tightening its checks, so it’s crucial to stay compliant and ensure all documents are accurate when claiming HRA benefits.