Salaried individuals under I-T scanner as taxman serves notices asking assessees for documentary proof to claim exemption

A cavalier attitude towards filing of income tax returns (ITRs), complete with fake rent receipts from close relatives, extra claims against home loans, false donations and a slew of dodgy practices encouraged by some of the tax practitioners with a promise to slash tax outgo and prop up refund, may come back to haunt many, particularly salaried individuals.

Unlike in the past when it was easier to escape the glare of the tax office, many may run out of luck now as their returns are red-flagged by softwares used by the revenue department.

According to industry circles, notices are being served by the Income tax (I-T) department asking assessees to produce documentary proof for claiming exemption.

These notices are for exemptions under house rent allowance under section 10 (13A) for salaried individuals; allowance under section 10 (14) for hiring a helper to perform official duties; or deduction under section 24 (b) of the I-T Act for interest paid on home loans.

The notices, pertaining to assessment years 2022-23, were issued as per section 133(6) of the law which empowers the tax assessing officer to call for information of certain details of transactions done during a particular year.

“We understand the tax department is doing a 360 degree profiling of individuals based on ITR data together with information collated from external sources (including verifications from filers) to examine the genuineness of claims. Data mining and analytics along with seamless flow of information is helping,” said Rahul Garg, Managing Partner, Asire Consulting, a tax and regulatory consultancy firm.

“According to CBDT’s directions outlined in the Central Action Plan for FY24, field officers have to leverage the best use of technology to widen the tax base. Not only taxpayers indulging in such practices but even people assisting them could be covered under the wider umbrella of prosecution allowed by the I-T law. So, individual taxpayers have to be more cautious in filings and lodge only genuine claims. Adverse actions (particularly prosecutions) could pose several challenges for taxpayers including the risk of losing jobs as many employers and corporates tend to treat prosecution matters very differently. This may also help the government in nudging more and more individual taxpayers to migrate to a simpler regime of a lower tax rate with least possible exemptions / deductions on the lines of similar regimes implemented for corporates in the last few years.”