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Fake Bills to Employer for Reducing Tax Liability ! Be Careful – You Can be Caught Research Team | Posted On Thursday, February 14,2019, 04:53 PM

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Fake Bills to Employer for Reducing Tax Liability ! Be Careful – You Can be Caught



Its tax season and you may be tempted to submit fake bills to save taxes. Submitting fake bills to under report income and save taxes could mean hefty penalties.

The close of the financial year is near. You would have received emails from the HR department asking for submission of bills for reimbursements and tax deductions for FY 2018-19. Should you submit fake rent receipts? Definitely Not, as under reporting income may fetch an income tax notice.

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Can You Submit Fake Bills To Save Taxes?

There are many expenses you can claim from employer to save tax. These don’t add to total taxable income and you save tax. Medical Bills and LTA (Leave Travel Allowance) bills like train and air tickets for domestic travel help save taxes.

SEE ALSO: Income Tax Return Filing And Eligibility

Why people submit fake bills?

If you don’t have bills of sufficient value, there’s a temptation to claim the full entitled amount. This is done by submitting fake rent receipts and medical bills to claim tax exemptions and reimbursements.

See Also: What is E-way bill?

How tax department catches you?

The income tax department can catch fake deductions at the time of scrutiny of ITR. It would ask the employer to furnish supporting evidence for TDS under Section 192 of the Income Tax Act and tax officials check authenticity of documents submitted.

The IT Department keeps an eye on all high-value financial transactions. This makes sure you can’t evade taxes.

Let’s say you made the HRA (House Rent Allowance) claim with the employer. This was done by submitting rent receipts. When the income tax department scrutinized ITR, it found there was no rental agreement or proof of rent payment having been made.

If you cannot provide proof of the payments, tax department will reject your claim. You will be asked to pay additional tax on income along with interest and penalty.

What does this mean? Even if you submit fake medical bills and rental receipts and your employer accepts them, you are held liable for this fraud by tax department, even if the employer accepts and reimburses bills. The employer is only responsible for collecting the necessary rental receipts and medical bills. He is not responsible for verifying the authenticity of the bills.

3 ways tax department catches tax defaulters:

  • You have filed ITR and it’s selected for scrutiny. You don’t have evidence to support your claims.
  • The tax department asks employer to furnish evidence for TDS under Section 192 and rent receipts and medical bills are found to be fake.
  • If the tax department gets to know that you have claimed tax deductions with false bills.

SEE ALSO: Insurance Tax Benefits 

Tax department tracks high-value transactions:

The tax department is tracking your high-value financial transactions. Banks have to report high value transactions to tax department through AIR (Annual Information Report).

High value financial transactions could be:

  • Deposits aggregating Rs 10 Lakhs or more in a financial year.
  • Depositing more than Rs 10 Lakhs in fixed deposit or savings bank account.

Banks and Financial Institutions report financial transactions under PAN. If there’s an income tax mismatch, it raises suspicion.  The onus is on you to provide proof (documents and transaction proofs). If you can’t, the tax department imposes interest and penalty.

Penalty for fake rent receipts:

If rent paid is less than Rs 1 Lakh, landlord PAN is optional. If rent paid is more than Rs 1 Lakh, you have to mandatorily submit signed copy of landlord PAN card. Many salaried citizens provide rent receipt, without supporting documents like landlord documents. If ITR is scrutinized, you have to provide payment proof and rental agreement. If you can’t, there’s a penalty.

Under Section 270A(1), there’s 50% penalty on under reporting income. If under-reporting is because of mis-reporting of income, there’s penalty of 200%. Deliberate submission of fake rent receipts could mean penalties of 200%.

SEE ALSO: Income Tax For Individuals 2019: 9 Things You Need To Know

Track rent receipts and medical bills:

Don’t submit fake rental receipts and medical bills. Keep track of all payments and bills made through cash. It’s difficult to show proof to assessing officer for payments made through cash. Make payments through bank account and credit card to show proof of authenticity. Submit original rent receipts and medical bills to enjoy tax deductions.

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