New Delhi, April 05, 2017

I-T department could now ask for supporting documents to prove that you are a genuine tenant

If you have been producing fake rent receipts to lessen your tax burden there is a bad news for you now.

You may no longer be able to claim income tax deductions for house rent allowance (HRA) by fabricating fake bills. The income tax department may now ask for proof from the tax payer showing that he is a genuine tenant.

According to a report in Economic Times, Dilip Lakhani, senior tax advisor, Deloitte Haskins & Sells LLP said, "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.”

ITAT Mumbai recently struck down the HRA exemption claim of a salaried individual for rent paid to her mother. This opens a pandora's box for all salaried people as now an IT officer can ask for proof such as leave and licence agreement, letter to the housing co-operative society informing about the tenancy, electricity bill, water bill and so on.

Till now, a salaried person receiving HRA could escape paying tax on 60% of the amount by submitting a rent receipt. Now, it may not be possible as the department could ask for supporting documents.

This Tribunal ruling comes a few months after the government's decision to cap the loss on property bought with borrowed money. According to this ruling a person producing fake rent receipt will be deemed as counterfeit and no required documents will be available with him. There may not be any genuine rent outflow from the person and in some circumstances even if the person is a genuine tenant, the amount mentioned in the receipt may be more than what's paid.

However, if you pay more than Rs 1 lakh annually towards house rent, then quoting landlord's PAN is mandatory for claiming tax benefit under House Rent Allowance.

[The Business Standard]