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Watch Out—Claiming Fake House Rent Allowance Could Land You A Tax Notice

The IT Department has cottoned on.

06/04/2017 12:54 PM IST | Updated 07/04/2017 8:53 AM IST
Danish Siddiqui / Reuters

You already know that submitting rent receipts to your Human Resources Department can help you save taxes. But, what you may not know is that submitting a fake rent receipt can get you in trouble with the Tax Department.

That's because a recent judicial pronouncement has given powers to your assessing officer to check all your documents to see whether the HRA claimed by you is genuine or fake.

A recent judicial pronouncement has given powers to your assessing officer to check all your documents to see whether the HRA claimed by you is genuine or fake.

So, how can you avoid such a situation?

In this post, we are going to tell you the correct way of claiming HRA exemption. That way you can enjoy the tax exemption and save yourself scrutiny or penalty from the Income Tax Department.

Here's how you can legitimately claim HRA tax exemption.

Actually reside in that house!

Employers give you HRA to help you meet costs of accommodation, and the government gives you tax exemption of almost 60% to help you save more money.

So, be honest if you are claiming HRA tax exemption—do actually stay in that house that you're claiming to live in!

However, what if you have your own house and still have HRA as a component in your salary? Then talk to an expert to help you plan your taxes.

Avoid payment in cash

As far as possible do not pay rent in cash. It's also preferable to pay electricity and water bills electronically. Safely keep your rent, water and electricity receipts; if you pay in cash then put a stamp of ₹1 on the rent receipt.

Pay TDS on rent

If you pay monthly rent of ₹50,000 or more then from June 2017 you need to deduct TDS on payment and pay the government treasury.

Have your documents in place

One thumb rule when dealing with money is to keep your documents ready. Whenever you take a house on rent, go a step further and sign a rent agreement with your landlord. Ensure all the details of your terms with your landlord are stated very clearly in the agreement.

Claim correctly in your income tax returns

The Tax Department is increasingly leveraging technology to keep a watch on taxpayers. If you've claimed a fabricated HRA, then avoid trouble at the time of filing your income tax returns. Just pay the tax that you had saved by using a fake rent receipt.

What if you pay rent to family?

This is a common question: "I paid rent to my parents, and even submitted rent receipt to HR to avail tax exemption. Will I get a tax notice?"

Not necessarily. If you have been genuinely paying rent to your parents, you should be in the clear. However, it is advisable to have a rent agreement in place. Also, your parents need to show rental income from you at the time of filing their income tax returns.

Got more questions? You can look for answers in our FAQs on claiming HRA exemption.

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