Annual Information Statement (AIS) will prevent fake HRA exemption claims

The Income Tax Department has introduced the new Annual Information Statement (AIS) for the taxpayers at the e-Filing portal. The AIS is a comprehensive statement containing details of all the financial transactions undertaken by you in a financial year (FY), i.e., it contains the information that is specified under the Income-tax Act, 1961.

What is Annual Information Statement (AIS)?

The AIS contains information related to income earned from various sources such as salary, dividend, interest from a savings account, recurring deposits, sale and purchase of equity shares, bonds, mutual funds, etc. The statement also contains information related to TDS, TCS, and any tax demand or refund. A taxpayer is advised to go through his or her AIS and report all high-value cash and non-cash transactions, as well as any kind of mismatch between the government data and the ITR date filed by the taxpayer when filing an ITR.

How AIS can prevent bogus HRA exemption claims?

The AIS also will prevent false HRA exemption claims. HRA is a widely known component of the salary structure. Up to 90 per cent of the actual rent paid is eligible for claiming tax exemption.

Earlier it was enough if the individual gives the rental receipts to the employer to claim tax exemption on the HRA. People had resorted to producing fake rent receipts. In 2013, Income Tax Department introduced the rule, where the annual rent paid is more than ₹ 1,00,000 per annum, it is mandatory to report the PAN of the landlord to the authority to claim exemption.

Providing fake rent receipts to claim house rent allowance (HRA) benefits, a widely prevalent practise continued. Some taxpayers provide PAN numbers of family members or even fake PAN numbers, assuming it is only a reporting requirement. Regardless of the PAN they report, rental income will be plotted to that PAN which will be included in the AIS, and if such income is not included in the ITR, it may result in an income tax notice. This can be reported to the Income Tax authorities and ultimately the taxpayer getting IT deduction benefits based on fake HRA claims can be exposed. It can also happen if someone made a bogus HRA declaration and submitted their PAN number incorrectly as the landlord's. Such taxpayers should file a 'feedback' on AIS on the income tax e-portal, claiming that such an amount is 'incorrect.'

There is currently no law in India that prohibits taxpayers from renting out their parent's or relatives' homes, but proper documentation corroborating the claimed exemption is required.

What is the penalty for making false HRA claims?

In case, a person is claiming false HRA exemptions and fails to give a convincing reply to a tax notice, the benefits claimed would be reversed and huge penalties would be levied. As per the IT rules, f an individual deliberately submits fake bills to misreport the income, it may attract a penalty of 200 per cent. Additionally, an assessee is liable to pay interest under sections 234A, 234B and 234C of the I-T Act.