A friend (who prefers anonymity) was reviewing his AIS (annual income statement) before filing ITR to ensure there is no disparity between the two. He was shocked to see that rental income reported in AIS was twice what he was actually receiving! The tenet was only paying him Rs. X per year as rent but was claiming Rs. 2X as rent for HRA using the friend’s (the landlord’s) PAN card!
If this incorrect entry were left uncorrected, the landlord would be liable for investigation by the income tax (IT) dept. They may send him a notice to revise the return with Rs. 2X as rental income!
From this assessment year onwards, the IT department has made available an annual income statement for all individual taxpayers. This pretty much includes (or will include in the coming years) every electronic transaction associated with us.
For example, SB account interest, dividends received, stock and mutual fund transactions, etc. A landlord’s rental income is also included if the tenant has claimed HRA using the landlord’s PAN number.
My friend summarised his experience as follows:
Last Saturday, all ITR details were updated. I only had to submit. I just thought would validate the numbers against AIS; it is when this cockroach surfaced. (So one key message you can say is that people verify AIS before submitting ITR)
– Then I could not submit and was hugely upset with the guy, having nearly two decades of a good relationship (The next message is that tenants will lose face to their owner, and more if the owner is known to our Father, in-law, etc.)
– The third lesson is that all RENT transactions should be credited to the bank (no cash) and annually renew the agreement copy.
I discussed this with a few friends when more funny things surfaced.
– Husband pays 15K rent, but HRA both the Husband and Wife claimed 15K each!
– In another case, the ex-tenant and present tenant both were overstating. The present tenant overstated rent by 25%, and the ex-tenant overstated by 50% without staying in the property. The ex-tenant changed his mobile number, which the owner could not trace.
– House was let for Lease, but the tenant has claimed HRA under owner PAN!
AIS can put an end to such fake HRA claims if the landlords are vigilant.
So what should my friend do?
- Correct the error in the AIS by submitting “feedback” on the income tax e-portal by selecting the “Information is not fully correct” option.
- File returns by showing Rs. X as the rental income (this is the actual rent received as per the rental agreement)
- Keep records of rental income received ready in case there is a notice issued by the IT dept. This can easily be cleared up on our own or with the help of a CA.
The big question on our minds is, “will the IT dept. Scrutinize the tenant and make him pay the tax defrauded with the bogus HRA claim with interest?” Tax experts are better placed to answer this. An easy guess is that the IT department is likely to seek an explanation from the tenant and offer him a chance to provide documentation to support his claim. If he is unable to do so, a tax demand with a fine will ensue. When this will happen is unknown.
If there is a single takeaway from this, the taxman is watching! Any attempt to evade tax or reduce tax by bogus means (at least with situations associated with an electronic trail) can easily be found via the AIS. Tax evasion can be quite expensive. Honesty is the “cheap and best” policy!
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Dr M. Pattabiraman(PhD) is the founder, managing editor and primary author of freefincal. He is an associate professor at the Indian Institute of Technology, Madras. He has over nine years of experience publishing news analysis, research and financial product development. Connect with him via Twitter or Linkedin or YouTube. Pattabiraman has co-authored three print books: (1) You can be rich too with goal-based investing (CNBC TV18) for DIY investors. (2) Gamechanger for young earners. (3) Chinchu Gets a Superpower! for kids. He has also written seven other free e-books on various money management topics. He is a patron and co-founder of “Fee-only India,” an organisation for promoting unbiased, commission-free investment advice.
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