Fake rent receipt will not be useful for Tax Savings anymore

Sohit Mishra
Tax experts are of the opinion that allowances could be claimed if the annual rent does not exceed the limit of Rs 1 lakh.

New Delhi, Apr 6: To stop the employees from producing fake property rent receipt, often from relatives or parents for lowering tax burden, the income tax officials may ask the employees to show some evidence to prove that they are genuine tenants.

According to a report published in Economic Times, people submitting forged rent receipts may face problems and the report quotes senior tax advisor Dilip Lakhani. “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,” the report quotes Dilip Lakhani.

Till now producing rent receipts has been a good way to reduce the tax burden and a salaried employee receiving ‘house rent allowance’ could escape paying at least 60 percent of the amount by generating fake rent receipts.

However, according to the new rule, the Income Tax department can demand proofs like electricity bill, water bill, licence agreement, letter of the housing co-operative society to allow lower taxable income. Currently, the employee has to submit PAN details only if the rent is above Rs 1 lakh but according to the new rule, officials can ask for submission of proof even if the rent is below Rs 1 lakh.

From the government perspective, the new rule will be beneficial for the government as it would ensure that there is no rental revenue leakage on account of rental income. The ruling comes months after government’s decision to cap the loss on property bought with the borrowed money.