Tax evasion warning: Implications of false HRA declaration

Employers are responsible for conducting reasonable due diligence, and in case if an employee claims fake deductions, he/she will face severe penal actions

- MONIKA YADAV

GONE are the days when taxpayers could claim house rent allowance falsely with illegal use of a Permanent Account Number (PAN). Now with technological advancement, it has become easy for the tax department to flag such fake claims.

The Tax Administration has noted cases where employees use PANS of individuals other than the actual income-earners to make inflated tax exemption claims, citing reluctance from landlords to provide their PANS.

Instead, employees use PANS of family, friends, or low-income individuals to avoid accurate income reporting. Such actions can lead to tax evasion and penalties, emphasising the importance of truthful tax filings to avoid legal consequences.

The tax administration has uncovered about 8,000-10,000 high-value cases involving amounts exceeding 10 lakh each of fraudulent HRA tax exemption claims where the PAN provided by the income-earner was found to be illegitimate after verification. Consequently, employees making such false claims faced tax liabilities, along with interest and penalties. The tax administration warns that inaccurate tax exemption claims could result in prosecution, underscoring the importance of employees refraining from making artificial claims to avoid legal repercussions.

HRA Exemption