Fake Rent Receipt: Income Tax Using AI to Detect Frauds

Jan-March months are really important for working people. Companies are asking employees for their investment proof this month. This proof determines how much tax will be deducted from your salary. Initially, some tax deductions are made based on investment declaration, but after providing the investment proof, the final deduction is made. While providing investment proof, some people often submit fake rent agreements and rent receipts to save more tax. If you are thinking of doing something like this, hold on for a moment.

For the past several years, many people have been saving tax in this way. The income tax department has also noticed this, and now it has started cracking down on such people. Those who claim tax deduction by submitting fake rent receipts have been receiving notices from the income tax department since last year. Now the question arises, how is this happening?

Let’s find out how the income tax department catches the ITAR with fake rent receipts.

Income Tax Department is using AI to Detect Fake Rent Receipts & Agreement

In the era of artificial intelligence, the income tax department is catching fake rent receipts using AI. For this, AIS form and form-26AS are matched with Form-16. It is worth mentioning that all transactions related to PAN card are recorded in these forms. When the taxpayer claims house rent allowance through rent receipts, the income tax department matches his claim with these forms, and if there is a discrepancy, it is immediately revealed.

House Rent Allowance (HRA) is subject to a rule that allows a person to claim HRA deduction only when they receive HRA from the company. Similarly, if an employee pays rent of more than 1 lakh rupees annually, they must provide their landlord’s PAN number. This allows the income tax department to match the claimed HRA amount with the landlord’s PAN number and the amount sent to the landlord. It’s important to note that all transactions related to PAN are recorded in the AIS form. If a discrepancy is found, the income tax department sends a notice to the taxpayer.

If your company provides HRA and you are claiming rent of less than 1 lakh rupees annually, you don’t need to provide your landlord’s PAN. In this situation, you can claim HRA up to 1 lakh rupees, which will not be scrutinized by the income tax department to verify its accuracy.

What if the rent is paid in cash?

When it comes to avoiding the income tax department, the first thought that comes to mind is to make transactions in cash. Suppose you respond to the income tax department’s notice by stating that there is a discrepancy between the rent receipt and the landlord’s PAN transaction because you paid the rent in cash or part of it in cash. Even in this case, the income tax department can send a notice to the landlord, and it is possible that the tax liability increases and everything is disclosed. In this situation, you could also be accused of fraud. It’s best to avoid fake rent receipts.

Why is there fraud related to HRA?

The biggest reason for fraud related to HRA is that it can save a lot of tax. For example, if you show an annual rent of 2.40 lakh rupees, i.e., 20,000 rupees per month for your house, you won’t have to pay tax on that amount, provided you receive at least 2.40 lakh rupees in HRA from the company. However, if you have paid less rent, you cannot claim the full amount. Many people think of creating fake rent receipts to save tax, but now the income tax department is catching these frauds and sending notices.


Hi, I am Nikesh Mehta, owner and writer of this site. I’m an analytics professional and also love writing on finance and related industry. I’ve done online course in Financial Markets and Investment Strategy from Indian School of Business. I can be reached at [email protected].

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