A few years ago, tax authorities stumbled upon individuals with significant rental income who were not filing returns. Closer scrutiny revealed that a few salaried employees were misusing these individuals' PANs (Permanent Account Numbers), making false claims of rent payment to secure tax-free House Rent Allowance (HRA).
Data Analytics Initiative Uncovers Widespread Abuse
A limited-period data analytics initiative launched by the tax department revealed that over three years, 28,174 taxpayers had made HRA claims disproportionate to their salaries. When approached by authorities, nearly 4,200 updated their returns, reversing bogus claims worth Rs 217 crore and yielding Rs 120 crore in additional tax revenue.
Legal HRA Claims Require Recipient to Declare Income
While claiming HRA based on rent paid to relatives (including parents) is perfectly legal, it holds only if the recipient declares that income and pays tax on it. The tax department's analysis highlights the importance of cross-verification between renter and landlord tax filings.
The initiative serves as a warning to taxpayers: the tax department is increasingly using data analytics to identify mismatches in income declarations. Taxpayers are advised to ensure that all HRA claims are backed by genuine rental payments and that the landlord reports the rental income in their tax return.
