5/1/24, 11:17 PM Misuse of PAN for fake HRA claims under I-T dept radar: What should landlord

s under I-T dept radar: What should landlord do in case of a fake claim? - The Economic Times

English Edition | 01 May, 2024, 11:17 PM IST | Today's ePaper

Misuse of PAN for fake HRA claims under I-T dept

radar: What should landlord do in case of a fake
claim?
By Neelanjit Das, ET Online Last Updated: May 01, 2024, 12:49:00 PM IST

Synopsis
Fake HRA Claims: If a tenant is using someone else's PAN to make a fake HRA claim,
then without doubt the tenant would get into trouble, however the individual whose
PAN was used as a landlord for this fake HRA claim would also get into trouble with the
income tax department.

Getty Images
The Income Tax department has
discovered numerous instances of
mismatch between rent received and
HRA claims. In this regard, many
taxpayers have been sent intimations
through the 'e-verification' system on
the department's compliance portal.

Landlords may become victims of fake HRA

It must be noted that, as per the law, if
claims made using their PAN details and may get
an income tax notice for this.
the annual rent exceeds Rs 1 lakh in a
financial year, then it is mandatory to obtain the landlord's PAN and quote it.
However, landlords often avoid giving their PAN. So, if a tenant, to save
himself, uses some other landlord's PAN to claim HRA, then both of them will
get into trouble with the tax authorities.

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5/1/24, 11:17 PM Misuse of PAN for fake HRA claims under I-T dept radar: What should landlord do in case of a fake claim? - The Economic Times

"Various instances have come to the notice of the tax department wherein
taxpayers (employees) have wrongly claimed HRA exemption by showing
fictitious rent payment to landlords," says S. Vasudevan, executive partner,
Lakshmikumaran & Sridharan (LKS) Attorneys.

Are landlords personally liable if their PAN has been misused by someone
to claim HRA?
Lawyers say that in cases where it can be proved that the landlord had no
knowledge about his/her PAN being used by an unauthorised person, there
should be no legal issues.

"If your PAN is fraudulently used to claim House Rent Allowance (HRA)
without your consent or knowledge, you shouldn't be held personally
accountable for these actions. However, it's crucial to promptly address the
situation. You also have the right to challenge any false claims made with your
PAN and request an investigation," says Sanket Jain, Partner, Pioneer Legal, a
law firm.

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cases

Ramakrishnan Srinivasan, former chief commissioner of Income Tax, shares

his experience working for more than 30 years in the Income Tax
department.

"In my experience, I have noticed instances where Landlords have received

notice from the Department for the purported rent said to have been received

https://economictimes.indiatimes.com/wealth/tax/misuse-of-pan-for-fake-hra-claims-under-i-t-dept-radar-what-should-landlord-do-in-case-of-a-fake-claim/printarticle/109730680.cms 2/6
5/1/24, 11:17 PM Misuse of PAN for fake HRA claims under I-T dept radar: What should landlord do in case of a fake claim? - The Economic Times

when their PAN was misused to claim House Rent Allowance (HRA) by
unscrupulous assessees. The moment PAN is quoted, it acquires a sense of
authenticity and the HRA gets allowed without much scrutiny. Landlords
have to take a lot of effort to deny tax liability and it is a long-drawn process
to prove they didn't receive the purported rent," says Srinivasan.

In some higher-value rental cases, where landlords share the PAN, either
tenants claim a higher HRA than the actual rent or the landlord accepts only
one part of the rent through cheque and the rest through cash. Tax authorities
often identify such cases for action.

"If the landlords can prove that they have not received the rent and their PAN
is misused then proceedings initiated in their cases would be closed. I have
seen cases where they were not successful in proving their stand and hence,
they were fastened with tax liability and had to go through long drawn
litigation process by filing tax appeal with the attended cost," says Srinivasan.

What can happen to landlords whose PAN has been misused by someone
to claim HRA?
Experts say that the individual who misused a landlord's PAN to claim HRA
and the unsuspecting landlord both will get into trouble with the income-tax
department. This is because for every HRA claim there should be a matching
rental income offered for income tax.

"Misuse of your PAN for HRA benefits will result in the fraudulent HRA
amount appearing as taxable income on your Tax Information Statement
(TIS). If not addressed, the tax authorities will treat this information as
accurate and will levy the corresponding taxes, interest, and penalties on you,"
says Neeraj Agarwala, Partner, Nangia Andersen India, a tax and business
consultancy company.

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5/1/24, 11:17 PM Misuse of PAN for fake HRA claims under I-T dept radar: What should landlord do in case of a fake claim? - The Economic Times

"Fraudulent use of PAN of purported landlords to claim HRA certainly can

result in enquiry by the tax department with respect to understatement of
income by the PAN card holder. Such alleged understatement may expose the
PAN card holder to tax, interest and penalties. In some extreme cases, it may
also result in initiation of criminal prosecution," says Vasudevan.

Chartered accountant Harsh Kedia, who is based out of Dubai, UAE explains
the process followed by the income-tax department in rent-HRA mismatch
cases. He says that if a discrepancy or mismatch is identified in the HRA
claim, the Income-tax department may first send a notice to the tenant to
provide clarification or additional information regarding the rent payments
and the landlord's PAN card details. "If the tenant fails to provide satisfactory
explanations or if the department suspects a fraud has happened, then they
may then send a notice to the landlord whose PAN card has been used in the
HRA claim," he says.

What to do if a landlord's PAN is misused by someone to claim HRA?

Legal experts suggest landlord include clauses in the rental agreement itself to
protect themselves. "The landlord may also add clauses in the rental
agreement enabling him/her to take legal action against the agent/tenant or
to claim indemnities towards any liability incurred on account of
unauthorized sharing or use of PAN. Such clauses will act as deterrent. It is
also highly advisable to get the rent agreement duly registered so that it can be
admitted as evidence in legal proceedings," says Vasudevan.

As per Agarwala, here are some steps the landlord may also take:
Review Your Tax Information: Carefully review your Tax Information
Statement (TIS) and AIS to identify any discrepancies or unauthorised
claims related to HRA.

File a Grievance: File a grievance through your income tax portal to

formally report the misuse of your PAN for HRA claims.
https://economictimes.indiatimes.com/wealth/tax/misuse-of-pan-for-fake-hra-claims-under-i-t-dept-radar-what-should-landlord-do-in-case-of-a-fake-claim/printarticle/109730680.cms 4/6
5/1/24, 11:17 PM Misuse of PAN for fake HRA claims under I-T dept radar: What should landlord do in case of a fake claim? - The Economic Times

Gather Documentation: Gather any evidence you have to support your

claim, such as lease agreements, utility bills, bank statements or other
documents that demonstrate your house property details and rental
incomes, if any.

Srinivasan says that maintaining proper documentation can be helpful,

however, its purpose will be defeated if landlords receive rent in cash and
don't issue rent receipts too. "Landlords should always receive rent through
banking channels, have rental deeds in place for spaces let out, claim vacancy
allowance under the income from house property heads of income, whenever
space is not let out even if for part of the year. If landlords have more than one
property and they are not let out, then they need to offer income from house
property on a notional basis. These steps will ensure that they are better
equipped if someone misuse their PAN," he says.

“Data analysis was carried out in some high-value cases of mismatch between
the rent paid by the employee and receipt of rent by the recipient for the FY
2020-21,” said the Central Board of Direct Taxes (CBDT) in a press release
dated April 8, 2024.

What NRI landlords, who face a fake HRA claim, can do about it?
NRI landlords with empty property in India may choose to put it on rent
through authorised Indian property agents. However, if any of these
authorised Indian property agents decide to let out to another tenant, who in
turn, claimed HRA against this PAN, it can create problems. This is because
information about this another tenant is privy to the property agent, who may
choose to not share this with the NRI landlord. The NRI landlord, being absent
from India, may either get to know this situation later or may not know ever.

According to Kedia, "Landlords must make sure to sign a legal agreement

outlining the terms and conditions of the arrangement with the authorised

https://economictimes.indiatimes.com/wealth/tax/misuse-of-pan-for-fake-hra-claims-under-i-t-dept-radar-what-should-landlord-do-in-case-of-a-fake-claim/printarticle/109730680.cms 5/6
5/1/24, 11:17 PM Misuse of PAN for fake HRA claims under I-T dept radar: What should landlord do in case of a fake claim? - The Economic Times

local agent to include clauses that specify the authorised use of your PAN card
for tax purposes only."

Jain says that while such an agreement, as mentioned above, can be

advantageous, however its enforceability may vary depending on local laws
and regulations.

According to Jain, here are some steps that landlords must take:

Clearly communicate the terms of the agreement, particularly regarding

the PAN card's authorised use for tax purposes, before finalising the lease
or rental agreement,

Maintain detailed records of all agreements, communications, and

transactions related to the rental property, including PAN card usage
agreements,

Regularly review and update rental agreements to comply with current

laws,

If you suspect fraudulent activity or PAN card misuse, promptly notify the
relevant authorities and take necessary legal action to safeguard your
rights and interests.

As per Srinivasan, "CBDT has come out with a lot of checks to prevent misuse
of PAN. One such thing is the AIS (annual information system) where any such
claim of payment of rent to the taxpayers gets flashed. After seeing this he/she
can immediately alert the department by not owning up the transaction.
Hence periodically taxpayers need to check whether any receipt of rent not
relating to them is showing up in their AIS."

https://economictimes.indiatimes.com/wealth/tax/misuse-of-pan-for-fake-hra-claims-under-i-t-dept-radar-what-should-landlord-do-in-case-of-a-fake-claim/printarticle/109730680.cms 6/6