According to the recent news from the Income Tax Department, rent receipts to reduce tax cannot be faked anymore.
Producing fake rent receipts from parents, relative and friends has often been a common practiced followed by salaried employees in order to get exemption on HRA or House Rent Allowance.
This could include practices such as staying in a family house for which there will be no rent and collecting a receipt from one of the family members as rent paid or in case of a genuine tenant, the amount mentioned in the rent receipt could be more than the actual amount of rent being paid etc.
This type of disregard for tax rules has generally been overlooked by both the employer and the department but this is soon to be changed.
The Income Tax Department has now stated a rule that the assessing officer or the employer can ask for proof of the rent receipt that has been submitted to them. The proof can include leave and license agreement letter to the housing co-operative society informing about the tenancy, electricity bill, water bill etc.
This new rule will ensure that the salaried class will get exemption only when their claim only if it is justified.
Considering the widespread practice of getting HRA exemption based on fake rent receipts, it is still not clear as to how the tax officials will verify the authenticity of the the information provided to them.
A tax official has said that verification could be done by using ITR forms and checking if the address for the property mentioned in both the rent receipt and the ITR are the same.
We will provide more update and clarity regarding this topic as and when it is available.