What is the punishment for submitting a fake rent agreement to claim HRA?

To claim tax deductions against the house tax allowance component of your salary, you are required to submit proofs by way of rent receipts and rent agreements. However, it is a common practice in India to forge these documents and claim tax benefits. Cracking a whip on such offenders, the income tax department has intensified the scanning of proofs submitted by taxpayers to check the varsity of the stated facts.

Why are fictitious rent agreements created? Why are they used?

To make a significant portion of the taxable income tax-free, unscrupulous property owners fabricate rent agreements while living on their own property. Applying a different modus operandi, tenants misreport the rent by inflating numbers. Elaborate arrangements are often made in cahoots with the landlord to make it all legal.

Legal consequence of rent agreement forgery

Forging of documents is an offence under the Indian Penal Code and its punishment is prescribed under Section 465, Section 468 and Section 471 of the IPC.

Under Section 465, a person who commits forgery shall be punished with imprisonment for a term which may extend to two years or with a fine or both.

Under Section 471, a person who fraudulently uses as genuine any document which he knows or has reason to believe to be a forged document is punished in the same manner as if he had forged such document.

Under Section 468, a person who commits forgery, intending that the document or electronic record forged shall be used for cheating, shall be punished with imprisonment for a term which may extend to seven years and shall also be liable to a fine.

See also: Fake rent receipt punishment and penalty for false HRA claim

What will the income tax department do if you forge a rent agreement for tax saving?

While the income tax department would neither report nor initiate an action against a person under the above-mentioned sections, it will take the following actions if you are found guilty of forging a rent agreement:

Penalty for under-reporting and misreporting of income under Section 270A

Under Section 270A of the Income Tax Act, 1961, the penalty for under-reporting of income is equal to 50% of the amount of tax payable on under-reported income. In cases where it is a consequence of misreporting, the penalty is equal to 200% of the amount of tax payable on under-reported income. One is liable to pay interest under Sections 234A, 234B and 234C of the Income Tax Act.

What is under-reporting of income?

A person is considered to have under-reported his income, if:

1. The income assessed is greater than the income determined in the return processed under Clause (a) of Sub-section (1) of Section 143.
2. The income assessed is greater than the maximum amount not chargeable to tax where no return of income has been furnished.
3. The income reassessed is greater than the income assessed or reassessed immediately before such reassessment.
4. The amount of deemed total income assessed or reassessed as per the provisions of Sections 115JB or 115JC is greater than the deemed total income determined in the return processed under Clause (a) of Sub-Section (1) of Section 143.
5. The amount of deemed total income assessed as per the provisions of Sections 115JB or 115JC is greater than the maximum amount not chargeable to tax where no return of income has been filed.
6. The amount of deemed total income reassessed as per the provisions of Sections 115JB or 115JC is greater than the deemed total income assessed or reassessed immediately before such reassessment.
7. The income assessed or reassessed has the effect of reducing the loss or converting such loss into income.

What is misreporting of income?

Misreporting of income could be one of the following:

1. Misrepresentation or suppression of facts
2. Failure to record investments in the accounts
3. Claim of expenditure not substantiated by evidence
4. False entry in the accounts
5. Failure to record any receipt having a bearing on total income
6. Failure to report any international transaction or any transaction deemed to be an international transaction or any specified domestic transaction

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Sunita Mishra

An alumna of the Indian Institute of Mass Communication, Dhenkanal, Sunita Mishra brings over 16 years of expertise to the fields of legal matters, financial insights, and property market trends. Recognised for her ability to elucidate complex topics, her articles serve as a go-to resource for home buyers navigating intricate subjects. Through her extensive career, she has been associated with esteemed organisations like the Financial Express, Hindustan Times, Network18, All India Radio, and Business Standard.

In addition to her professional accomplishments, Sunita holds an MA degree in Sanskrit, with a specialisation in Indian Philosophy, from Delhi University. Outside of her work schedule, she likes to unwind by practising Yoga, and pursues her passion for travel.
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