Furnishing fake house rent receipts for lower taxes is set to get tougher as the taxman has been empowered to demand more proof for HRA deduction, if required. In a recent ruling, Mumbai Income Tax Tribunal held that the assessing officer can now demand further proof for allowing HRA deduction.

The Income Tax Department can now seek evidence such as leave and a licence agreement, electricity or water bill, letter to the housing society, etc to prove that they are genuine tenants of the rented property, reports Economic Times. Notedly, HRA exemption is one of the most popular tax saving avenue for salaried class employee.

There are instances when a person staying in his family home, collects a receipt signed by his father for tax deduction or where a person may be staying separately but claiming to pay rent to a relative owning another property in the same city The latest rule would discourage such practices.

“Many people claim HRA by paying rent to their friends, relatives or family members. And so they do not care about taking proper rent receipts, making regular rent payments etc. So in these cases, the income tax officer may not consider it as a genuine case now and so he may disallow the HRA exemption,”  Archit Gupta, Founder & CEO, ClearTax.com told Financial Express.

HRA is essentially paid to help the employee meet expenditure on rent for residential purpose at the place of duty.

Salaried workers receiving ‘house rent allowance’ from the employer could claim a tax deduction of at least 60% of this amount using fake rent receipt.