Fake Rent Receipts For ITR Filings Under Form 16 Will Lead To Heavy Penalty & Reversal Of Benefits

Its funny how Indians are mastered in finding out a loophole in every record. It turns out that many tax payers submit fake rent receipts, inspite of owning a house in the same city. This is done in order to enjoy Housing Rent Allowance, cutting down some amount of taxes.

With intent to bust such fraudulent practices, starting this assessment year, the Income Tax Department has amended the format of Form 16 with that of the new ITR forms. This will require tax declaration proofs through computer-based processing. In case of any data mismatch, be ready for an income tax notice.

Fraudulent Practices by TaxPayers

In order to save some taxes, taxpayers have been using inappropriate techniques to cut down their tax outgo. As per the current Income Tax rule, there is no need to disclose the PAN of one’s landlord for paying rent up to Rs 1 lakh per annum.

Taking advantage of this rule, many employees have claimed to pay a monthly rent of around Rs 8,300 in their ITR forms to claim the tax benefits on House Rent Allowance (HRA) but haven’t declared the same to their employers. The accounts department strictly demands proof by way of rent receipts to include such information in the Form 16.

Since the Income Tax Department requires no submission of proof, taxpayers submit false claims at the time of filing their ITR, or simply pay a percentage of the tax saved to the person filing ITR on their behalf.

Aliasing the Formats of Form 16 and ITR: Well Played Income Tax Dept

In order to bring down such malpractices, the Income Tax Dept. has changed format of the new Form 16 and brought it in accordance with that of ITR to generate tax declaration proofs through computer-based processing. This means that two documents will be electronically generated after e-filing of ITR and in case of any data mismatch, an income tax notice will be sent.

The CEO of CharteredClub.com, CA Karan Batra puts in proudly, all the benefits of issuing the new Form 16 and confirms it to be highly stringent. He believes that generating an electronically data report will bring down such fraudulent discrepancies significantly. The new Form 16 covers everything and all the allowances, including  HRA, LTA, Pension and Leave Salary.

It is highly comprehensive and reports all of the above allowances under separate sections. In case any item isn’t disclosed in the manner prescribed, the Income Tax Department won’t reconcile everything and a notice may be issued electronically to explain the variance.

This format makes it possible for the taxman to electronically reconcile data submitted in the income tax return filed by employees. Even if you are actually renting accommodation but your employer does not declare this in your Form 16, you are likely to get an Income Tax Notice. You’ll then have to submit rent receipts, rent agreement and bank statement to justify your claim. The last document is the most crucial evidence as it lays out the money trail provided rent is actually paid.

There will be no problem for genuine claimants, as all the proper documents to support the claim will be in place but for false claimants, it may turn out to be troubling.