Old Tax regime: Rent receipts are being properly investigated, your dream of saving money in the old tax regime will be shattered..

Finance Minister Nirmala Sitharaman has made the new tax regime more attractive by making income up to Rs 12 lakh tax-free in the budget. No changes have been made to the old tax regime in the budget. Income taxpayers file income tax returns by adopting either the old or the new tax system. The old tax system provides the benefit of tax deductions, while this facility is not available in the new tax regime. Even today, more than 30 percent of income taxpayers file ITR by adopting the old tax system. To get tax exemption, they have to provide proof of investment. Rent receipts also have to be submitted to get House Rent Allowance (HRA Exemption). Fake rent receipts are also submitted to save tax. The reason for this is that many taxpayers do not live on rent, but they claim HRA exemption to save tax. Now the Income Tax Department has turned its eyes on people who are trying to save tax by adopting illegal methods. By December 2024, the Income Tax Department had caught 90 thousand taxpayers who were trying to get tax deductions through fake donations and investment claims. Provisions like Section 80C (investment exemption), 80D (health insurance premium), 80E (education loan), 80G (charity donation), and 80GGB and 80GGC (donation to political parties and electoral trusts) of the Income Tax Act were misused. Experts say that if the Income Tax Department investigates properly, then the dream of many to save tax through rent receipts can be shattered.

Fraud came to light during the investigation.
The investigation by the Income Tax Department also found that many people were claiming interest payments on education loans, while no loan was taken. Similarly, some individuals made fake claims of House Rent Allowance (HRA) even though they had not rented any property. Apart from this, many violations related to fake claims of charity donations and tax-free investments have come to light.

The department is taking the help of AI.

The Income Tax Department is now resorting to Artificial Intelligence (AI) tools to crack down on those who take tax exemptions through fake receipts. With the help of this technology, the information given in the tax return form is matched with the transactions related to the PAN card. If a person claims exemption by submitting a rent receipt of more than Rs 1 lakh, then the department will also mandatorily ask for the PAN card number of the landlord. After this, it will be checked through AI whether the amount shown by the tenant in the receipt is also being recorded as income on the PAN card of the landlord or not.

What is HRA?

Employed people get a House Rent Allowance (HRA). It is a part of the salary structure of most employees. If you live in a rented house, you can avail tax exemption on HRA. HRA is exempted under Section 10 (13A) of the Income Tax Act, 1961, subject to certain conditions. The taxable income of a salaried person is calculated by deducting HRA. If an employee is living in his own house and does not pay rent for any house, then HRA is fully taxable.

A salaried person can avail of HRA tax exemption on the amount he pays as house rent. The calculation of HRA exemption depends on many factors. This exemption can be availed on the amount received as HRA, 50% of the salary (basic saalary + DA) if living in a rented house in a metro city and 40% for non-metro cities, and the amount paid more than 10% of the annual salary (basic salary + DA).

Penalty on fake claim
If a taxpayer misreports his income, he can be fined under Section 270A of the Income Tax Act. He may have to pay a penalty of up to 200 percent of the applicable tax on the wrongly reported income. Wrong reporting of income includes misrepresenting or hiding facts, claiming expenses not supported by documentary evidence, entering any wrong entries in the account book, etc.

If the Income Tax Officer feels that the rent receipts are fake, he can reject them and re-calculate the income of the taxpayer. He can also send a notice and seek clarification. According to Section 271AD of the Income Tax Act, presenting fake or false documents or distorted documentary evidence is considered a wrong entry and for doing so, a fine of Rs 10,000 or a penalty can be imposed for tax evasion.

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