Illegal PAN for Bogus HRA Claims: Income Tax Dept to Take Action against Employees

High Value HRA Deductions have been spotted by the department with employees under the Income Tax Scanner!
Illegal PAN fHRA Claims- Income Tax Dept - Employees - TAXSCAN

The Income Tax Department has uncovered a fraudulent scheme involving the misuse of Permanent Account Numbers (PANs) to falsely claim Housing Rent Allowance (HRA). This discovery has revealed around 8,000 to 10,000 high-value cases, amounting to at least Rs.10 lakh.

The investigation was initiated when officials stumbled upon alleged rent receipts totaling almost Rs.1 crore linked to a single individual, which raised suspicions. However, upon questioning, the person associated with the PAN related to these transactions denied any involvement or knowledge of the purported rental income.

Further scrutiny exposed that the individual in question did not receive the recorded rent amount under their name. Subsequent inquiries revealed a pattern where PANs were being fraudulently used to obtain tax deductions from employers.

Notably, inspectors have encountered instances where multiple employees from the same companies have claimed tax deductions using identical PANs.

Income tax authorities are actively pursuing those who submitted false claims to recover the owed taxes. It remains uncertain whether legal actions will follow against these individuals. This case underscores a common misuse of PANs without the holders’ awareness.

The complexity deepens as Tax Deducted at Source (TDS) is currently applicable only for monthly rents exceeding Rs.50,000 or annual payments above Rs.6 lakh.

Income tax officials emphasized that PAN misuse can be detected using modern technologies, automated processes, and data analytics. Besides facing delayed tax payments, offenders could incur penalties, penal interest, and in severe cases, prosecution. To prevent such abuses, renters paying rent to their parents must declare rental income and opt for check or electronic transfers over cash payments.

Employers are reminded of their responsibility to validate rent payments for HRA exemptions, as they could face repercussions for overlooking fraudulent claims. In some instances, companies have policies that terminate employees found submitting fictitious claims for benefits like HRA or Leave Travel Allowance (LTA).

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