The income tax department has unearthed a scam involving the fraudulent use of permanent account numbers (PAN) to claim house rent allowance (HRA) without actual tenancy. Around 8,000-10,000 high-value cases, each involving amounts exceeding Rs 10 lakh, have been identified so far. The investigation was triggered by the discovery of alleged rent receipts totaling approximately Rs 1 crore attributed to an individual.
Uncovering the deception
Upon interrogation, the individual associated with the PAN linked to the purported “rental income” disavowed any knowledge of the transactions. Subsequent investigations revealed that the individual never received the reported rent payments.
Widespread misuse of PANs
The case prompted a broader probe revealing widespread misuse of PANs by unscrupulous individuals seeking tax deductions from their employers. Instances have emerged where multiple employees from the same company used identical PANs for tax claims. Tax authorities are pursuing these employees to recover the misappropriated tax amounts.
Legal implications and preventive measures
While legal action against the offenders remains uncertain, tax experts warn of potential penalties and prosecution for such fraudulent activities. To prevent such misuse, financial transactions, particularly rent payments, should be traceable and transparent, preferably through electronic means. Employers are advised to implement stringent verification processes to prevent fraudulent claims and to ensure compliance with tax regulations.
Expert insights and employer responsibilities
According to tax advisors, the responsibility primarily rests with the employee, although employers are urged to exercise due diligence in verifying HRA claims. Employers found to have lax verification processes risk reputational damage and may even terminate employees engaged in fraudulent practices.
The case underscored the imperative for vigilance and compliance in financial transactions, particularly in the realm of taxation, to prevent and penalize fraudulent activities.
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