As the deadline for filing Income Tax Returns (ITRs) approaches on July 31, 2023, the Income Tax Department is intensifying its efforts to tackle taxpayers who may be using fake rent receipts to evade taxes. The income tax department has been cracking down on salaried individuals for submitting false or incorrect income tax returns (ITRs). From submitting fake rent receipts to false donations, the tax department is proactively flagging such returns.
ITR Filing: Tax exemptions for rent
Salaried individuals have been allowed to claim tax exemptions for rent up to ₹1 lakh without disclosing the PAN of their landlords (as per Section 10(13A)).
“Unfortunately, some individuals have been taking advantage of this provision, leading to a surge in cases where taxpayers are receiving notices from the tax department, asking for proof to validate their tax exemptions
To scrutinize the genuineness of such claims, the Income Tax Department is adopting a comprehensive approach. “They are conducting a 360-degree profiling of individuals by analyzing data from ITRs and cross-referencing it with information obtained from external sources, including verifications from taxpayers themselves
If discrepancies are detected, the tax department may issue notices to these taxpayers. If it is found that income has been under-reported, the department has the authority to impose a penalty of up to 200% of the tax applicable on the misreported income, he added.
1)Let’s ensure honest tax compliance to avoid trouble.
2)Use a valid rental agreement.
3)Prefer online or cheque rent payments.
4)Mention the landlord’s PAN for payments exceeding ₹1 lakh.
5)Keep records of utility bill payments.
6)Obtain a PAN declaration from the landlord if not available.
Top reasons for which you could receive an income tax notice
The Income Tax Department issues an income tax notice for a number of reasons under a number of provisions. Normally, a taxpayer receives an income tax notice as a result of missing or filing their income tax return late, filing it incorrectly, claiming an incorrect tax refund, and many other reasons. The income tax notice is issued by the tax department under sections 143(1), 142(1), 139(1), 143(2), u/s 156, Section 245, and Section 148.
Getting an income tax notice can be stressful. These notices can be issued for various reasons – from as obvious as failing to file an income tax return or a delay, to calculation errors to a request for specific information pertaining to your filings or reporting excessive losses.
Here are some of the common reasons why taxpayers receive an income tax notice:
a) Mismatch in TDS amount: When the TDS claimed in the Tax return doesn’t match with Form 26AS and 16 or 16A.
b) Mismatch in income: Whenever there is a discrepancy between the income tax return and form 26A.
c) Discrepancy in tax returns: There are times when taxpayers make common mistakes like claiming deductions under the wrong sections, or unintentionally failing to add their interest, rent, dividend, or other incomes in their calculations. Such instances will create discrepancies in their tax returns and what they are actually liable to pay and will invite income tax notice.
d) Discrepancies in disclosure of declared income versus your actual income: This is an obvious one. The income tax department is constantly on the lookout for people trying to evade taxes. If the IT authorities suspect that you haven’t disclosed all your income from various sources, then you could be served with an income tax notice.
e) Failing to report high-value transactions: The Income Tax Department requires taxpayers to report all their high-value transactions, so they can curb black money and detect all under-reported income. In case, you fail to report such transactions then this will invite an IT notice. Examples of high-value transactions include cash deposits or withdrawals over ₹10 lacs, international transactions in foreign currency over ₹10 lacs, and purchase of mutual funds, bonds, or debentures of over ₹10 lacs.
f) Random scrutiny: If you’re unlucky, you could receive the notice because every year, the IT department randomly selects the files for which IT returns need to be scrutinized. If you have paid your taxes diligently and have all the paperwork in order, you have nothing to worry about.
g) Incomplete documentation: Many times, your income tax returns need to be accompanied by some required documentation. If you fail to provide these, then you will receive a notice. These include but are not limited to: your balance sheet and profit and loss statement in case the net profit from your business income or profession exceeds ₹1.2 lacs, Form 67 if you have received any foreign income and Form 10E in case of arrears.