Fake rent receipts to claim tax relief might not work from now on

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Submitting fake rent receipts to get additional tax relief might not be sufficient to claim the relief, for officials could ask for supporting documents to corroborate the claim. This comes following the Mumbai income tax appellate tribunal’s (ITAT’s) decision to deny the claim on HRA (house rent allowance) of a taxpayer.

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The IT department will make it harder for individuals to claim tax deduction on HRA without adequate proof.

According to the Mumbai ITAT, individuals cannot claim tax exemptions on HRA on the basis of “sham” rent payments. They will have to provide proof of such rent in order to enjoy the benefits.

Section 10 (13A) of the Income Tax Act provides for tax exemption under HRA. While it permits a taxpayer to claim tax relief if he/she resides with a relative, the taxpayer should have proof of such rent paid.

A number of employees of private firms and organisations submit fake/adjusted rent receipts to avail benefits under Section 10 (13A). Employers will now have to ensure that such employees provide adequate proof to back these claims.

Taxpayers who wish to claim such deductions will have to provide documentation like leave and licence agreement, electricity/water bill payment through cheques/online modes, letter to society informing them about tenancy, etc. Additionally, all rent payments should have proof, either in the form of cheques or through bank transfers.

The Mumbai ITAT relied on the Indian Evidence Act of 1872 to come to the decision, laying the onus on the taxpayer to prove that rent was actually paid.

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