Income Tax Department Exposes PAN Scam Involving Fake Rental Claims

False HRA Case: The investigation has brought to light approximately 8,000-10,000 high-value cases, each involving sums exceeding Rs 10 lakh

The Income Tax (I-T) Department in a recent revelation has uncovered a widespread scam revolving around the fraudulent use of Permanent Account Numbers (PAN) to claim House Rent Allowance (HRA) without actual tenancy. The investigation has brought to light approximately 8,000-10,000 high-value cases, each involving sums exceeding Rs 10 lakh.

The probe was initiated following the discovery of alleged rent receipts totalling around Rs 1 crore attributed to an individual. However, upon interrogation, the said individual disavowed any knowledge of the transactions associated with their PAN, raising suspicions.

Further investigations revealed that the reported rental income was entirely fictitious, with the individual never receiving any rent payments. This case has unveiled a broader misuse of PANs by unscrupulous individuals seeking tax deductions from their employers, including instances where multiple employees from the same company utilised identical PANs for tax claims.

Tax authorities are now actively pursuing these employees to recover the misappropriated tax amounts. While legal action against the offenders remains uncertain, tax experts caution about potential penalties and prosecution for such fraudulent activities.

To prevent such misuse in the future, experts recommend ensuring traceability and transparency in financial transactions, especially in rent payments, preferably through electronic means. Employers are advised to implement rigorous verification processes to thwart fraudulent claims and ensure adherence to tax regulations.

Tax advisors said that while the primary responsibility lies with the employee, employers must exercise due diligence in verifying HRA claims. Employers with lax verification processes risk reputational damage and may even resort to terminating employees engaged in fraudulent practices.

This case serves as a stark reminder of the importance of vigilance and compliance in financial transactions, particularly concerning taxation, to curb and penalise fraudulent activities.