Fake house rent receipts may not work anymore to lower tax burden

In the recent past, the ITAT Mumbai had struck down the HRA exemption claim of a salaried individual for rent paid to her mother.

Created On: Apr 6, 2017 12:25 ISTModified On: Apr 6, 2017 14:42 IST

Income Tax (IT) Department is going to be harsh against people (taxpayers) who claim benefits/tax deductions under the House Rent Allowance (HRA). Reports suggests that following a recent judgement of Income Tax Appellate Tribunal, the IT department may ask taxpayers to submit more proofs in relation to the HRA deduction and they are genuine tenant.


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The proof may include rent agreement, electricity or water bill, licence agreement among others.

The case came in light while the ITAT Mumbai was hearing the HRA exemption claim of a salaried individual for rent paid to her mother. Highlights of Income Tax Appellate Tribunal ruling

• Several salaried employees submit fake rent receipts signed by their relatives even after residing in the house of their own or family.

• In case of actual tenants, there are chances where the amount mentioned in the receipt may vary from the actual rent he/she pays to the house owner.

As per a report in a leading newspaper, Sandeep Sehgal, the director-tax and regulatory at Ashok Maheshwary & Associates LLP, has said that “the Mumbai Tribunal in its recent judgement clearly spelt that only rent receipts in itself shall not be treated as conclusive document for claiming exemption for HRA and the tax authorities may ask for details to vouch that the claim for rent paid is genuine and reasonable”.

Why such an action against HRA claims for the tax deduction?

House Rent Allowance (HRA) is a big component of an employee’s salary. Tax rules says that salaried individuals who live on rent can claim HRA to lower down their taxes, which is partially exempted from taxes. However, the HRA is fully taxable for people who do not live in a rented accommodation.

Reports suggest that there are people who submit fake rent receipts to pay lower taxes. It says that about 60 per cent of the salaried workers who receive HRA from their employer have claimed tax deduction with fake rent receipts.

Conditions for tax exempts under Section 10(13A) of the Income Tax Act on HRA received by Assessee from his/her employer includes

• He/she should have rented an accommodation

• He should be occupying the mentioned accommodation

Conditions for tax deduction in case of housing loan: Section 24b of the Income Tax Act allows a person to claim a deduction for the interest paid on their house loan, which is restricted to Rs 2 lakh per financial year in case, where the property is self-occupied by the assessee.

Issuance of PAN number: The existing tax bracket says that every individual who claims the tax deduction by depositing rent receipts must provide PAN number of his/her landlord, if he/she pays a rent above Rs 8333 per month. This submission of PAN will allow the tax department to have a look on the landlord that whether he/she has provided  the details of income via house rent in his/her tax return.

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