There are many who submit fake bills for getting reimbursement component of their salary from employers. This could be for medical reimbursements or for conveyance. The same goes for House Rent Allowance (HRA) where employees have to submit rental receipts to their employers.
Fake bills are easily available and people tend to use them to lower their tax liability. However, if the income tax department finds out about this, you might have to pay penalties.
How will the income tax department find out?
The income tax department usually selects tax payer details for scrutiny at random. If you are selected for scrutiny, then the IT department can ask for the proof of your income and expenditure relevant for taxation. In such a case, if you have submitted fake bills and are not able to substantiate your claims, you might have to pay penalties.
In some cases, the income tax department might ask your employer to provide the bills that were submitted by you. This usually happens in cases where Tax has been deducted at Source (TDS). If on scrutiny of the bills it is found that the bills are not genuine, you might have to pay penalties.
Income tax department also works on the basis of tip-offs. If someone gives information to the income tax department that you have submitted fake bills, they might ask you for proof for the exemptions given. If you are unable to produce original bills, you might have to pay penalties.
There have been cases where fake rent receipts have been submitted where no rent was paid by the employee as they were living with their parents. Now, the income tax department has said that actual proof of transfer of money has to be shown in case an employee is claiming HRA when he/she is living in their parent’s house.
Employers might also ask you for the rental agreement and the income tax department might check if your parents are reporting the rental income in their income tax return. Some people even under report the rent paid by them. This is because if the rent paid is more than Rs 1 lakh for a year, they have to submit the PAN of their landlord. In case PAN is not available, employers have to get their landlord to sign Form 60. To avoid these hassles, people under report the rent paid and this might land them in trouble.
Banks have also been asked to report high value transactions done by bank customers. So, if you make cash deposits or have assets that are not reported, all your accounts might come under scrutiny. In that case, if you have submitted bills for reimbursement, the income tax department might check the genuineness of the bills.
What will be the penalty?
Submitting fake bills is equal to misreporting your income. If the income tax department finds out that you have submitted bills that are not genuine, you might have to pay penalty as high as 200% of the tax that has to be paid.
In the Finance Bill 2016, a new section 270A was introduced in the Income Tax Act, 1961. This came into effect from Assessment Year 2017-18. The sections says that an assessing officer, a commissioner or a principal commissioner could ask any person who has under-reported or misreported income to pay penalty on such income apart from the tax that has to be paid.
Under section 270A, if you under-report your income you will have to pay a penalty of up to 50% of the tax payable on such income. If you misreport your income, the penalty can be up to 200% of the tax payable on such income. This penalty is over and above the tax that has to be paid. In some cases, interest might be levied on the taxes that are payable.
However, under section 270A, tax payer could apply to the assessing officer for immunity from imposition of penalty. For this, the tax payer has to explain why income was under-reported or misrepresented. If the officer is satisfied with the explanation, the officer might not penalise the tax payer.