I am sure all of us have done this one time or the other, especially employees to either save taxes / or for submitting it to the Employer for reimbursement of House Rent Allowance, or HRA. Although, to be entitled for HRA, the employee should be staying in rented accommodation, most of them use Fake rent receipts. However, going forward you may not be able to get away with it – Infact, you may end up loosing your job – so beware.
As per a recent judgment by Honorable Mr. Justice Rajiv Sahai Endlaw of Delhi High Court an employee can be dismissed from service for producing Fake Rent Receipts.
Since housing is one of the fundamental needs for us, the government treats it sympathetically, and gives us various tax breaks towards it. The tax benefit on HRA is available under section 10 (13A) of the IT Act.
In simpler terms, the whole of HRA is exempt from tax only if it is not in excess of 50% in the 4 metropolitan cities, and 40% in the case of other cities, and further if the rent paid is more than the total of HRA and 10% of the salary. Otherwise, the excess has to be added to the taxable income.
Was it simplified? Not quite so? Well, there are many HRA calculators available online and one such is readily available over here for our Trak readers – HRA Tax Calculator.
As per Income Tax Publications Rent Receipt is not compulsory for salaried employees drawing house rent allowance up to Rs.3,000 pm. But in the regular assessment of the employee, the Assessing Officer is free to make enquiry or request proof of payment of rent by assessee.
With the rise in Incomes and Rentals many salaried people are eligible for a much higher HRA, and there in lies the crux of the Proof Submission and verification.
Employers giving HRA to employees take in Rent receipts as proof in case of scrutiny. Employees also need to keep a copy of the same. There are other ways where in the ITO might get convinced that the Amount of rent being exempted is the amount which one is eligible for.
For example, through Bank Statements showing a transfer of the amount to the Owner or cheque numbers through which one is paying the rent. Many Employees tend to fake rent receipts to claim a higher HRA to reduce their Tax Outgo.
Apart from the HRA receipts, many cases have come where in the employees fake the Medical Bills and Leave Travel Concessions/Allowance amongst some. What is required is a set of clear guidelines to do away with such practices, I did hear that most of these allowances were supposed to go away in the Proposed Direct Tax Code, but haven’t heard of it in the draft proposal. It’s high time some measures are taken to prevent fraudulent claims and at the same time give adequate benefits to the salaried people.
Let’s wait and watch as to how the final DTC addresses these issues, if at all it does.