Submitting fake rent receipts to claim House Rent Allowance (HRA) for tax benefits is considered illegal, and the Income Tax Department in India is taking steps to crack down on such practices. Here are some key points on how the department detects fake rent receipts:

• Use of Artificial Intelligence (AI): The Income Tax Department is utilizing AI to identify fake rent receipts. The AIS Form and Form-26AS are matched with Form-16 to cross-verify information related to PAN card transactions.
• Matching PAN Numbers: If a taxpayer claims HRA through rent receipts, the department matches this claim with the PAN numbers provided in AIS Form and Form-26AS. This is particularly important when the claimed rent is more than Rs 1 lakh annually.
• Verification of PAN Transactions: All transactions related to PAN are recorded in AIS forms. The department verifies the claimed HRA amount with the transactions recorded under the landlord’s PAN number. Any discrepancies may trigger a notice from the Income Tax Department.
• Rule for PAN Submission: If an employee pays rent exceeding Rs 1 lakh, they must provide the PAN number of their landlord. The department checks the claimed HRA against the rent amount sent to the landlord’s PAN number.
• Handling Cash Transactions: If someone claims that the rent was paid in cash, the Income Tax Department may send a notice to the landlord seeking clarification. This can lead to increased tax liability for the landlord, and the taxpayer may face accusations of fraud.
• Penalties and Consequences: Submitting fake rent receipts can lead to serious consequences, including penalties and accusations of fraud. It is advisable to avoid such practices and comply with tax regulations.
• Reasons for Fraud: People may engage in such fraudulent practices to save taxes. By inflating the rent amount, individuals try to claim a higher HRA and reduce their taxable income. However, the Income Tax Department’s use of technology and scrutiny aims to catch such fraudulent activities and prevent tax evasion.

In summary, the Income Tax Department in India is actively using technology, including AI, to identify discrepancies in HRA claims based on rent receipts. Taxpayers are advised to comply with the rules and provide accurate information to avoid legal consequences.