So many people in India are indulged in fraud in HRA claims. To avoid this and to be on the safe side, one should be aware of the penalties.
Fraud is cheating on someone to get benefits, which results in the loss of the other person, which is illegal and against Indian laws. And fraud is known to be a person who performs this crime. Several frauds are happening, including HRA—House Rent Allowance fraud.
Fake rent receipts are something that people use to qualify for HRA exemptions and also when someone is avoiding paying taxes to the Indian government. When someone does this act, they can be charged with several penalties, as this is defined as an illegal act in the Indian law system.
What is HRA and Fraud in HRA?
HRA is called House Rent Allowance, which is paid to people working in some companies, and that specific company also pays the HRA. If someone does not use this allowance to stay in any rented accommodation, that house rent allowance becomes taxable. Many factors influence HRA, including the salary paid to some employees, rent paid, the city of the residence where that specific employee is staying and the HRA that is receivable by that employee.
Most of the time, employees are known to fabricate the rent receipts to claim an HRA exemption by listing some higher amount than what they pay. One of the common reasons people do this is just to avoid taxes necessary to pay! And they succeed in this to lessen their taxable income, but this is considered illegal and against the laws of India.
What are the Penalties for Fraud in HRA Claims?
When someone uses a fake rent receipt for a house to lessen the taxable amount, they have to face many negative consequences, which will result in a lot of loss.
- If someone wonders about the penalties for fraud in HRA Claims, that depends on many factors, including the amount of rent and the type of forgery.
- If the amount is under-reported, then the income tax department is known to apply the penalty of 200% of the tax that is said to be owed on the under-reported amount.
- If the under-reporting is done, this can result in a penalty of up to 50% and even more than that!
- If there is a data discrepancy, the IT department is known to issue a notification requesting legitimate papers, revoking the HRA exemptions and even if they can commence the inspection.
- The income tax department notices everything very closely, and if they notice any mischievous activities by someone, they will be getting legal notice from their side, and they may also ask for proof regarding their claims. And in the condition when that person is not able to prove those claims, then the claimed exemptions will be discontinued.
- Apart from several legal penalties, people can also suffer from other issues, including a declined score credit, any type of financial opportunities in the future, and much more.
Some Red Flags While Reviewing Fake Rent Receipts
Absence of the Agreement of Rent
If someone is going to claim a Housing Rent Agreement by giving the rent receipt, then they need to have a valid and legal rent agreement. If someone does not have a valid rent agreement, it will indicate that the rent receipt is not true and is fake.
Fake Details of PAN Card
One should be sure they are sharing the true PAN Card details with the owner of that particular house, who is mentioned on the rent receipt. When someone shares fake details, this will result in a fake rent receipt.
Non-Declaration of the HRA Benefits
It is crucial to be aware of the benefits one can get through HRA. If someone is not getting to know these things, they should know that the rent receipt is fake and not genuine.
What are the Consequences of Fake Rent Receipts on the Real Estate Market?
Consequences on Rental Market
If someone indulges in fake rental receipts, it may distort the price of rental space. It also permits the tenants to claim the HRA exemptions, which are known to be based on the increased amount of rent.
Long Term Impacts
When so many people are getting indulged in fake rent receipts, and it is becoming widespread, then that will severely affect real estate. When the Income Tax Department learns that so many tenants have claimed about the HRA exemptions that are based on false rental receipts, this will result in a legal investigation and penalties against people who will be doing such!
House Rent Allowance is given by companies to the people who are working there, and that allowance is to be used by them to spend on their rental housing. If they don’t do this, then that particular amount becomes taxable.
If someone does any kind of fraud in these, they will suffer many legal penalties, including 200 per cent of the tax that is owed on the under-reported amount. In the case of under-reporting, the Income Tax Department can send a legal notice, and apart from so many penalties, people will also suffer from declining credit card scores and a lot more!
What is the limit for an HRA claim without proof?
If the HRA is up to 3000 per month, there is no requirement for rent receipts.
What are the proofs necessary for HRA claims?
Rent receipts and rent agreements can serve as proof for claiming HRA.
How can I pay rent to claim HRA?
House rest can be done via cash or through the bank, but it’s good to do it via banking channels as there is proof for the transaction.
What is the max HRA claim limit?
The HRA claim cannot exceed 50% of your basic salary, and you cannot claim the full rental amount.