200% Income Tax Penalty on False Deduction & Fake Rent Documents

As the last date of Income Tax Return (ITR) filing, 31st July 2023, has gone, the income tax department is now thinking to deal with taxpayers who are using fake rent receipts to evade tax, as per the reports. If any tax evasion is found concerning such matters, the department has the authority to collect a penalty of up to 200% of the applicable tax on the hidden income, experts informed.

The income tax act makes the house rent allowance (HRA) and donations exempted from tax and deductions. A taxpayer may use a fake rent receipt to claim such an exemption from HRA in order to benefit from the exemption. A tax notice requesting legitimate documentation, proof of rental payments, proof of donations made, etc., can be the result of a fake rent receipt or a bogus donation deduction.

An income misreporting would be deemed if the Misrepresentation or suppression of facts, claim of expenditure not supported by documentary evidence, or recording of any false entries in the books of accounts is there, therefore a 200% penalty would levy to tax on this underreported income under section 270A.

According to a tax and consulting business, if the tax officer disallows the bogus rent receipts and contribution receipts when recalculating the income, there may be interest consequences as well.

Read Also: Rental Income in AIS Can Stop Fake Claims of HRA Exemption

It is important to remember that there is a potential for incarceration in such circumstances as well.

Further, an entry in the books of accounts based on forged or falsified documents or any false piece of documentary evidence is considered to be a false entry and is subject to a penalty of Rs 10,000 or tax evaded, whichever is higher, under section 271AAD, if discovered during the course of the proceedings.

Additionally, if any professional, such as an accountant, merchant banker, or registered valuer, provides a report or certificate based on inaccurate information, the AO or CIT(A) has the authority to order such professional to pay a fine of Rs. 10,000 as a penalty under section 271J.