In the era of Artificial Intelligence (AI), the Indian Income Tax Department is leveraging AI technology to detect fraudulent rent receipts used for claiming House Rent Allowance (HRA). The department cross-verifies claims using Form-16, the Annual Information Statement (AIS), and Form-26AS to identify discrepancies.
How AI Detects Fake HRA Claims
All financial transactions linked to a taxpayer’s PAN card are recorded in these forms. When an individual claims HRA by submitting rent receipts, the tax authorities match this information with other records. If inconsistencies are found, AI-powered systems immediately flag them, enabling swift detection of fraudulent claims.
Key Rules for HRA Deduction
To claim HRA deductions, an employee must receive HRA from their employer. Additionally, if the annual rent exceeds Rs 1 lakh, the taxpayer is required to provide the landlord’s PAN details. The Income Tax Department verifies the claimed HRA amount against the payment received by the landlord, as recorded in AIS. Any mismatch results in the issuance of a notice to the taxpayer.
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When PAN Details Are Not Required
For those claiming less than Rs 1 lakh in annual rent, providing the landlord’s PAN is not mandatory. This means that HRA claims up to this limit may not be immediately scrutinized for authenticity. However, AI is increasingly being used to analyse patterns and detect irregularities in tax filings.
Why HRA Fraud Is Common
HRA fraud is prevalent because it allows taxpayers to save on taxable income significantly. For example, declaring a monthly rent of Rs 20,000 (Rs 2.4 lakh annually) can reduce taxable income by the same amount, leading to lower tax liability. This has led many individuals to submit fake rent receipts. However, the government’s AI-driven mechanisms are effectively catching these fraudulent claims and issuing notices to violators.
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Future Changes in Tax Rules
Starting next year, under the old tax regime, income up to Rs 12 lakh will be tax-free due to rebate provisions. As a result, the importance of HRA deductions may diminish, potentially reducing instances of fraudulent claims.
The Income Tax Department’s AI-driven scrutiny is making it increasingly difficult for taxpayers to evade taxes through fake rent receipts. With enhanced tracking and automated verification, those attempting to misuse HRA benefits are more likely to face penalties and legal consequences.
