Salaried people are receiving income tax letters for FY21-22 ITR deductions:  keep an eye out for current ITR

According to reports, the income tax department has begun issuing warnings to salaried persons requesting documentation of tax exemptions and deductions claimed on income tax returns (ITRs).

Individuals may claim different tax exemptions and deductions under income tax regulations if they choose the previous tax system. For example, a person may claim a tax exemption on house rent allowance (HRA), leave travel allowance (LTA), interest paid on housing loans, and so on.

However, many people forge fraudulent rent receipts or travel invoices in order to claim such tax breaks and save money on their taxes. This may result in notifications from the IT department.

The income tax notifications being sent currently are for ITRs submitted last year – for the fiscal year 2022-23 (FY 2021-22). If you are currently submitting your ITR and claiming specific deductions and tax exemptions, here are a few things to keep in mind to avoid receiving a tax notice this year.

According to Suresh Surana, founder of RSM India, a business consulting organisation, “while claiming exemptions and deductions, individuals should ensure that such deductions or exemptions claimed by them are in accordance with receipts, invoices, or other necessary documents maintained by them.”

Taxpayers seeking LTA deductions, for example, must have travel tickets, invoices, and other associated papers. Those seeking HRA tax exemption must also have a valid lease or rent receipts. Despite a rent agreement or receipt, the I-T department might seek confirmation that rent has been paid.

This payment should be made via financial methods. Deductions claimed for payment of life insurance premiums or mediclaim premiums should be supported by receipts.

According to Surana, “it is important to note that rent paid to family members may be scrutinised by the income tax department and may be subject to potential litigation.”

Individuals should save documentation of the deductions and exemptions they claim, according to tax experts and chartered accountants. Last year, the IRS issued emails to people requesting them to validate the deductions they claimed within 15 days in order to get an income tax refund.

The email was sent when there was a discrepancy between the deductions shown on the ITR form and Form 16 (the employer’s TDS certificate). If the taxable income was lower than in prior years, the emails were also sent.

“The tax scrutiny can be avoided by expecting it,” says Naveen Wadhwa, DGM, Research & Advisory, Taxmann. If you seek a tax exemption or deduction, you should always expect the tax department to ask you for documentation to back up your claims.

To justify your deductions, gather authentic and necessary supporting documentation within the applicable fiscal year. Any later attempt to generate misleading proof at the time of ITR filing or investigation may not assist you support your claim.

The Income Tax Act does not exclude an employee from claiming an HRA exemption for rent paid to family members. The exemption may be granted if the claim is real and backed by documented proof, such as monthly rent or utility bills, and the beneficiary reports such income on his or her ITR.

To claim deductions for house loan EMI payments under Sections 24(b) and 80C, acquire an interest and principal repayment certificate from the bank.”

What will happen if fake claims are detected?

Certain persons may have filed false claims on the ITR. It decreases their taxable income. This will result in income misreporting.

“Misreporting income, such as claiming deductions for donations with kickback payments or deductions reserved for persons with certain disabilities,” Wadhwa notes, “may result in penalties of up to 200% of the evaded tax.”

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