Taxpayers beware! Claiming false HRA through ITR may land you in problem

Mumbai: The deadline for filing Income Tax Returns (ITRs) by salaried taxpayers is July 31. If a tax refund is due to you, the ITR must be filed by the due date to get interest on the refund claim. However, to spare additional tax, most of the taxpayers show that they stay on rented house by paying a monthly rent of around Rs 8,000, and claim the tax benefits under House Rent Allowance (HRA).

The Income Tax Act states that if a tenant is paying a rent up to Rs 1 lakh per year to the proprietor, then they don’t need to disclose the PAN details, as reported by The Financial Express.

They abstain from declaring such information to their employers though the accounts department asks for the rent agreement and rent receipts to claim and incorporate it in Form 16.

As there is no need to submit any record while filing ITR, the employees either incorporate the wrong claims of their own or in a few cases pay a percentage of the tax spared to the individual filing ITR on their behalf to create the false claims.

The format of Form-16 has been changed to make it in sync with the format of Income Tax return (ITR), so that the two documents may be arranged electronically after e-filing of Income Tax Return 2019-20 and system generated notices may be sent in case of any errors.

“Issuing of new Form-16 is a good move and the major reason for all these changes is to ensure that the form is in sync with the ITR Form, which will help the Income Tax Department in electronically matching the data reported in ITR with all the data which it has gathered from various sources,” said CA Karan Batra, Founder & CEO of CharteredClub.com.

“The new Form-16 is very comprehensive and everything is required to be reported in this form. All allowances like HRA, LTA, Pension, Leave Salary etc are needed to be disclosed in the form as separate items. If there is any item which is not disclosed in the manner prescribed – the Income Tax Department may not be able to reconcile everything and a notice may be issued electronically to explain the variance,” he added.

However, if you are not staying on rent or your company does not mention this in the Form-16, be ready to get the notice this year from Income tax Department for not disclosing the same in your ITR filing.

Talking on the consequence of mismatch between Form-16 and ITR regarding HRA tax exemption, Batra said, “In such a case the claimant may receive a notice and will have to submit rent receipts, rent agreement and bank statement to claim the exemption.”

There will be no issue for genuine claimants, as all the right documents to support the claim will be in place, but for wrong claimants, it may turn out to be nothing but inviting problems.

In case, a person is claiming false HRA exemptions and fails to give convincing reply to tax notice, Batra said, “Previous benefits claimed would be reversed and huge penalties would be levied.”

So, with the government taking serious steps to plug the loop holes, it would be good for you to stop making wrong HRA and other claims to get a few additional tax benefits.