Income Tax Department Uncovers HRA Fraud Through Unauthorized PAN Usage Identifies 10,000 Instances Exceeding Rs 10 Lakh Each; Employees to Face Consequences

Severe Penalties Await Those Found Guilty of Fabricating Deductions or Rebates. The news has been published in Times of India and full news is hereunder-

“The income tax department has detected a fraud involving unauthorised use of permanent account numbers (PAN) by individuals to claim house rent allowance when they were not even tenants. So far, at least 8,000-10,000 high value cases have been detected with amounts running into Rs 10 lakh or more.
The cases first came to light when authorities found alleged rent receipts of around Rs 1 crore by an individual.

When confronted, the individual whose PAN reflected the “rental income” denied any knowledge. Further probe revealed that the individual indeed did not receive the rent that was shown against his name.

The case prompted the income tax department to further investigate the matter and it turned out that there was rampant misuse of PANs by unscrupulous individuals to claim tax deduction from their employers. So much so that officials have now come across cases where employees of certain companies have used the same PAN to claim tax deduction.

Tax officials said the department is now going after those employees, who have made bogus claims to recover the tax. It is unclear if legal action is also planned against them. The case reflects another instance of PAN being misused without the holder actually knowing about it. In this case, what has complicated the matter is that currently TDS (tax deducted at source) is applicable only for monthly rent of over Rs 50,000 or annual payment in excess of Rs 6 lakh. So, a lot of employees have been misusing the benefit to avoid paying tax on rental income.
“Most of the financial transactions are linked to PAN. With use of latest technology and automated processes and data analytics, it is not very difficult for tax authorities to track fake claims. This may not only entail tax payments later but also will result in levy of penal interest, penalty and even lead to prosecution in extreme cases. Where rent is paid to the parent, the rent should be paid through cheque or by way of electronic transfer (and not through cash) to demonstrate the genuineness of the transaction and that parent too needs to report that rental income in his or her return,” said Kuldip Kumar, partner at Mainstay Tax Advisors.
Tax officials said the fault entirely lies with the employee and the employer cannot be held liable even if multiple individuals quote the same PAN for rent payment. “Employers are not expected to make a deep investigation, but the onus is also on them to have reasonable checks and balances, while obtaining the proof of rent paid to allow HRA exemption. In fact, in some of the cases, employers have their policy that where any employee is caught having submitted a fake claim for HRA or LTA etc, such employee may be terminated from employment,” said Kumar.

Souce:- Times of India

https://timesofindia.indiatimes.com/business/india-business/tax-department-detects-hra-fraud-with-illegal-usage-of-pans/articleshow/108885147.cms

Notice under Section 133(6):

Under Section 133(6) of the Income Tax Act, tax authorities have the authority to issue a notice to any person or entity to furnish information or documents relevant to a tax assessment or inquiry. This notice empowers tax officials to gather necessary information to verify the accuracy and completeness of the taxpayer’s financial records.

Section 133(6) in The Income- Tax Act, 1995–

(6) require any person, including a banking company or any officer thereof, to furnish information in relation to such points or matters, or to furnish statements of accounts and affairs verified in the manner specified by the Assessing Officer, the Deputy Commissioner (Appeals), the Deputy Commissioner or the Commissioner (Appeals), giving information in relation to such points or matters as, in the opinion of the Assessing Officer, the Deputy Commissioner (Appeals) the Deputy Commissioner of the Commissioner (Appeals) will be useful for, or relevant to, any inquiry or proceeding under this Act.

For failure to comply with notice u/s 133(6)

Section 133(6) notice is given to tax payer or related parties seeking certain details of transaction done during the year under consideration. Failure to comply with notice can ead penalty of Rs10,000 u/s 272A.

Key Points of Notice under Section 133(6):

1. Purpose: The notice is issued to gather specific information or documents that may be crucial for assessing the taxpayer’s tax liability or conducting an inquiry into their financial affairs.
2. Scope: It can cover a wide range of information, including financial statements, account books, bank statements, transaction records, agreements, contracts, and any other documents relevant to the tax assessment.
3. Timeline: Taxpayers are typically required to respond to the notice within a specified timeframe, usually within a few weeks from the date of receipt.

Response to Notice under Section 133(6):

1. Understanding the Requirements: Upon receiving the notice, the taxpayer should carefully review the requests outlined in the notice to understand the specific information or documents sought by the tax authorities.
2. Gathering Documents: The taxpayer should gather all the requested information or documents mentioned in the notice, ensuring that they are accurate, complete, and organized for submission.
3. Preparation of Response: It’s essential to prepare a clear and concise response addressing each request in the notice comprehensively. If any information or documents are not readily available, the taxpayer should provide a valid explanation for the delay or inability to furnish them.
4. Submission to Tax Authorities: The response, along with the relevant documents, should be submitted to the designated tax authority within the stipulated timeframe mentioned in the notice. It’s advisable to maintain copies of all documents submitted for future reference.

Importance of Compliance:

• Legal Obligation: Responding to the notice under Section 133(6) is a legal obligation, and failure to comply with the notice can result in penalties, fines, or further scrutiny by tax authorities.
• Facilitating Tax Assessment: By providing the requested information or documents in a timely and accurate manner, taxpayers facilitate the tax assessment process, ensuring transparency and compliance with tax laws.

Conclusion:

A notice under Section 133(6) of the Income Tax Act empowers tax authorities to gather essential information or documents relevant to tax assessment or inquiries. Taxpayers should respond promptly and diligently to such notices, providing the requested information or documents to ensure compliance with tax laws and facilitate the tax assessment process.

Under the Income Tax Act of India, various financial transactions are subject to reporting requirements to the Income Tax Department. These transactions, which exceed specified thresholds, are reported by the respective entities to the Income Tax Department, and the details of these transactions are compiled into the Annual Information Statement (AIS) for individual taxpayers. Here are some common transactions and their respective thresholds that are reported under the AIS:

1. Bank Transactions:

• Cash deposits or withdrawals aggregating to Rs. 10 lakh or more in a financial year in one or more savings account of a person maintained with the same bank.
• Payment made by any mode (other than cash) for credit card bills aggregating to Rs. 10 lakh or more in a financial year.
• Purchase of bank drafts or pay orders with cash aggregating to Rs. 10 lakh or more in a financial year.

1. Mutual Fund Transactions:

• Redemption of units of mutual fund for an amount exceeding Rs. 10 lakh.

1. Stock Transactions:

• Sale or purchase of shares of a company listed on a recognized stock exchange exceeding Rs. 10 lakh in value per transaction.

1. Property Transactions:

• Purchase or sale of immovable property valued at Rs. 30 lakh or more.
• Receipt of rent exceeding Rs. 2.40 lakh per annum.

1. Credit Card Transactions:

• Payment made by any mode (other than cash) for credit card bills aggregating to Rs. 10 lakh or more in a financial year.

1. Foreign Exchange Transactions:

• Purchase of foreign currency or traveler’s cheque exceeding Rs. 10 lakh or more in cash.

1. Fixed Deposit Transactions:

• Fixed deposit with banks or post office aggregating to Rs. 10 lakh or more.

1. Cash Transactions:

• Cash deposits aggregating to Rs. 10 lakh or more in a financial year in one or more saving account of a person maintained with the bank.
• Cash deposits aggregating to Rs. 50 lakh or more in a financial year in one or more accounts (other than current account and time deposit) maintained with the bank.

Reporting and Compliance:

• Annual Information Statement (AIS): The details of these high-value transactions are compiled into the Annual Information Statement (AIS) for individual taxpayers and are made available for download through the Income Tax Department’s e-filing portal.
• Verification and Compliance: Taxpayers are required to verify the accuracy and completeness of the high-value transactions reported in their AIS. Any discrepancies or omissions should be rectified promptly to ensure compliance with tax laws.
• Income Tax Return Filing: Taxpayers must accurately report all high-value transactions in their income tax returns and ensure compliance with tax laws. Failure to disclose these transactions may attract penalties or scrutiny by tax authorities.

The Annual Information Return (AIR) serves as a crucial tool for the Income Tax Department to track high-value financial transactions and ensure tax compliance among taxpayers. When significant discrepancies are identified between the information reported in the AIR and the income tax returns filed by taxpayers, the Income Tax Department may issue a notice to investigate and resolve the discrepancies. Taxpayers are required to respond to such notices promptly and provide the necessary clarification or information to address the discrepancies and ensure compliance with tax laws. It’s essential for taxpayers to accurately report their financial transactions and income to avoid potential penalties or scrutiny by tax authorities

Tax Savy Tips for #Equity Investors

Your Investment is a Short Term if a period of holding is up to 12 Month otherwise it will be treated as Long Term

Short Term Capital Gain is Taxable @ 15%

Long Term Capital Gain is exempt up to Rs.1 lakh after that taxable @ 10 % (No Indexation)

Long Term Capital Loss can be set off against Long Term Capital Gain only

Short Term or Long Term losses can be carried forward up to 8 years if you have filed ITR on or before the due date u/s 139(1)

💡Tips💡
1:Book Long Term Capital Gain up to Rs.1 lakh during the year as it was exempt from tax

2:If you have already booked a short term capital gain then to save taxes book short term capital losses and repurchase the shares on next day so that such short term losses can get set off against your taxable short term capital gains and no effect to your portfolio

3:If you have already booked a long term gain of more then 1 lakh then to save taxes book short term capital losses or long term capital losses and repurchase the shares on next day so that such short term/long term losses can get set off against your taxable long term capital gains and no effect to your portfolio.