Producing fake rent receipts has been common practice in India as it is an easy way to lower tax burden.
A salaried employee receiving 'house rent allowance' from the employer could escape paying tax on at least 60% of this amount by generating sham rent receipt.
This cavalier disregard of the rule has been overlooked by most employers as well as the IT department this far, but this transgression will not work anymore.
The income tax department will now insist on proof from the taxpayer to prove that he/she is indeed a genuine tenant, staying in the property in question.
There may not be any actual rent outflow from the person as he may be staying in his family home and collecting a receipt signed by his father. Even if a person is a genuine tenant, the amount mentioned in the receipt may be more than what's paid.
This will not pose a problem if the person receiving the rent is outside the tax net. There are several instances where a person may be staying separately but claiming to pay rent to a relative owning another property in the same city; or, one of member of the family claiming a loan repayment deduction while another submits a false rent receipt to evade tax.
Given the widespread practice of paying tax on only a small slice of HRA, it's unclear how far tax officials would go in questioning such claims and pinning down salaried employees.
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