Income Tax Department Implements AI to Detect Tax Fraud Related to House Rent and Housing Loan Interest
The Income Tax Department of India has recently enlisted the help of artificial intelligence (AI) to investigate taxpayers’ returns and identify fraudulent claims associated with house rent and housing loan interest. This move comes as chartered accountants (CAs) have drawn attention to instances where individuals falsely claim to live in rental properties owned by their close relatives, while the actual income generated from rent remains undisclosed.
The adoption of AI by the income tax department allows for a thorough analysis of tax returns, with a particular focus on suspect deductions related to house rent and housing loan interest. As stated in a report by the Times of India (ToI), CAs have flagged cases where taxpayers falsely claim residency in rented properties owned by their relatives, without reporting the rental income. Additionally, certain taxpayers are under scrutiny for making fraudulent claims regarding housing loan interest. These practices are believed to have increased due to the high cost of living and limited available deductions.
According to sources within the income tax department, AI technology enables the identification of patterns and anomalies, particularly in the areas of house rent allowance (HRA) and home loan repayments. Misuse of these categories is currently being closely examined, and other claimed rebates will also undergo scrutiny. To assess the authenticity of claims, the income tax department plans to analyze taxpayers’ income profiles over the years.
Jainik Vakil, chairman of the GCCI direct tax committee and a chartered accountant, advised taxpayers to avoid seeking advice from unqualified sources regarding rent deduction claims. While income tax returns are self-assessed, the department maintains a vigilant watch to ensure compliance. Claiming HRA deductions requires salaried employees to provide a rent agreement, rent payment receipts, and genuine residency in the rented property, all of which are applicable only under the old income tax regime.
Some chartered accountants have expressed concerns that the current economic climate has left many salaried individuals struggling to invest and save on taxes, leading them to resort to questionable practices to reduce their tax liability. It is worth noting that no documentary evidence is required when filing returns for exemptions and deductions. Salaried employees often claim deductions under Section 80C for various expenses, making them more susceptible to the temptation of tax evasion.
Chartered accountant Karim Lakhani suggested that the government should consider increasing the basic exemption limit or standard deductions for individuals earning up to Rs 10 lakh per annum, given the rising inflation and financial constraints faced by many salaried individuals.
In conclusion, the Income Tax Department’s implementation of AI technology for tax return analysis aims to detect fraudulent claims related to house rent and housing loan interest. By leveraging patterns and anomalies, the department hopes to address discrepancies in categories such as HRA and home loan repayments. Taxpayers are advised to be cautious and avoid engaging with unqualified sources for guidance on deductions. The present economic climate has created challenges for salaried individuals, potentially leading to practices aimed at minimizing tax liability. Some chartered accountants have advocated for an increase in the basic exemption limit or standard deductions to alleviate financial burdens.
