As January unfolds, it brings a pivotal moment for salaried individuals in India. This is the time when companies seek investment proofs from employees, shaping the tax deductions for the upcoming months. However, a concerning trend has emerged where some resort to submitting fraudulent rent agreements and receipts to manipulate tax savings. The Income Tax Department is now using Artificial Intelligence (AI) to combat these deceptive practices.
Initiating the Crackdown
In recent years, individuals attempting to save taxes by submitting fake rent receipts have come under scrutiny. The Income Tax Department has initiated actions, sending notices to those suspected of fraudulent claims. The crackdown aims to curb such illegal practices and ensure tax compliance.
AI in Action
In the era of Artificial Intelligence, the Income Tax Department has adopted advanced technology to detect fake rent receipts. By leveraging AI, the department matches AIS Form and Form-26AS with Form-16, where all transactions related to PAN cards are recorded. Any disparities trigger alerts, prompting further investigation.
Key Detection Strategies
One crucial aspect involves matching PAN numbers, especially when claiming House Rent Allowance (HRA). To claim HRA deduction, individuals must receive HRA from their employer. If annual rent exceeds Rs 1 lakh, providing the landlord’s PAN becomes mandatory. The department cross-verifies the claimed HRA amount with transactions linked to the landlord’s PAN, swiftly detecting any discrepancies.
Cash Transactions and Accountability
In an attempt to sidestep the scrutiny, some may resort to cash transactions. However, claiming payment in cash as a defense may lead to additional complications. If a notice is issued, the Income Tax Department may request the landlord’s response, potentially increasing their tax liability. Engaging in such practices could result in accusations of fraud, highlighting the importance of avoiding fake rent receipts altogether.
Understanding the HRA Rule Violation
The motivation behind fraudulent practices surrounding House Rent Allowance lies in the significant tax savings it offers. By showcasing inflated rent amounts, individuals aim to secure tax exemptions. However, the Income Tax Department’s vigilant measures aim to thwart these attempts, sending a clear message against tax evasion.
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