The Income Tax Department is sending notices to those who commit tax evasion by using fake receipts. Taxpayers can receive notices for various reasons. The first major reason is if they have hidden income in some way or declared lower income. The second reason is making mistakes in the Income Tax Return (ITR). If you have also shown lower income in your return, you might receive a notice. Let’s find out the penalties for concealing income in the ITR.
Salary earners can save taxes by claiming exemptions such as House Rent Allowance (HRA) and Leave Travel Allowance (LTA), as well as deductions under sections 80C, 80D, and others. To claim HRA, it’s necessary that the individual is residing in a rented house, paying rent, and receiving HRA from the company for that house.
Many individuals who own a house and live in it also claim HRA by providing fake rent receipts to the company. If one pays rent exceeding one lakh in a year, the landlord’s PAN number needs to be provided. In such cases, people often look for someone familiar who doesn’t file ITR (Income Tax Return) and use their PAN number. To avoid needing a PAN number, sometimes less than one lakh in rent is shown.
Many individuals claim both HRA (House Rent Allowance) and home loan deductions. While this isn’t prohibited, there are certain restrictions. Whether your purchased home is in the city where you work or in another city, you can avail the benefits of both HRA and home loan tax deductions simultaneously in both scenarios. However, the reason for claiming these tax benefits should be genuine, as tax officials from the Income Tax Department may investigate and inquire during a tax scrutiny if they suspect discrepancies. Not only that, many individuals also submit fake donation receipts to save taxes.
Any form of additional income, i.e., extra earnings, must be reported in your tax return. If you don’t disclose any additional income, the chances of being subjected to a tax scrutiny increase. This is especially true when the income is received through banking channels or subject to Tax Deducted at Source (TDS).
Relying on fake documents to obtain tax exemptions is definitely not a wise choice. The Income Tax Department is using Artificial Intelligence (AI) and data mining for 360-degree verification of records.
Sometimes taxpayers declare lower income to reduce their tax liability or provide incorrect income information, this is known as misreporting income. In such cases, penalties can be imposed under Section 270A. Penalties equivalent to 50% of the tax on the under-reported income can be levied. In cases of income misreporting, the penalty could even go up to 200%.
If you have made a mistake while filing your Income Tax Return or if you have forgotten to declare some income, there’s no need to worry. You can revise your return. If there is any tax liability on that additional income, you can avoid it by paying the due tax and prevent getting noticed. If there are any errors in the returns of the previous two years before this, you can file updated returns. Don’t completely ignore the Income Tax notices; instead, provide proper explaination.
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