For as long as anyone can remember, producing fake property rent
receipt, often from parents and relatives, has been an easy way to lower
tax burden. Such cavalier disregard for tax rule was overlooked by most
employers as well as taxman, who possibly felt it was a minor
transgression. Perhaps, not anymore.
The income tax department now has good reason to insist on proof from
the tax payer showing that he is indeed a genuine tenant, staying in the
property in question.
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.
However, according to a recent tribunal ruling, the assessing officer
can now demand proof — such as leave and licence agreement, letter to
the housing co-operative society informing about the tenancy,
electricity bill, water bill etc. — in allowing a lower taxable income
as computed by a salaried employee.
"The ITAT (Income Tax Appellate Tribunal) ruling has now laid down the
criteria for the assessing officer to consider the claim of a salaried
employee and if necessary question its justification. This will put the
onus on the salaried class to follow the rules in availing the tax
rebate," said Dilip Lakhani, senior tax advisor, Deloitte Haskins &
Sells LLP.
Understandably, none of the required documents are available with
salaried employees submitting fake rent receipts. 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 submitting 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.
However, ITAT Mumbai's decision to strike down the HRA exemption claim
of a salaried individual for rent paid to her mother could set a
precedent. "Technology and stricter reporting system may make it easier
for the (income tax) department. For instance, there was a time when
many never bothered to pay tax on interest earned from bank fixed
deposits. Today, it’s almost impossible. In case of HRA exemption, the
assessing officer may crosscheck whether the address mentioned in the
ITR form is the same as the property on which rent is paid," said a tax
officer.
The Tribunal ruling comes a few months after the government's decision
to cap the loss on property bought with borrowed money. Till now, a
person paying an interest of, say, Rs 3 lakh on a loan (he took to buy
the property) and earning Rs 1.2 lakh as rent could show the difference
of Rs 1.8 lakh as 'loss' and set it off against salary income to pay
lower tax.
In the last Union budget it was laid down that such losses for an individual tax payer cannot exceed Rs 2 lakh.
Source:-The Economic Times
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