Fake HRA Claims: Every year during the tax season, a segment of salaried employees submits fabricated rent receipts to cut down on their tax liability. However, following the news released on April 26, 2026, it is clear that such opportunities are now a thing of the past. The Income Tax Department has begun utilizing an advanced AI-driven scrutiny system that identifies fake claims in the blink of an eye.
This change is particularly significant for West Bengal government employees who are preparing to file their ITR-1 or ITR-2 before the July 31, 2026, deadline. Previously, uploading a receipt was enough to get the job done, but now every transaction is being digitally verified by AI.
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How does the IT Department’s AI scrutiny work?
A Centralized Processing Center or CPC 2.0 system is currently in place. This system directly cross-matches a taxpayer’s PAN, Aadhaar, bank transactions, and Form 16 details. If a person claims a monthly rent of Rs 20,000 but their bank statement shows no evidence of a corresponding withdrawal or UPI transfer, the AI flags it immediately.
Furthermore, the landlord’s PAN is also being scrutinized separately. The system easily detects whether the landlord has declared that specific rental income in their own tax returns.
New rules regarding landlord relationships and Form 124
Under the new tax rules, if your annual rent exceeds Rs 1 lakh, you must clearly disclose your relationship with the landlord. Filling out the new Form 124 under the Draft Income-Tax Rules, 2026, is now mandatory.
Consequently, if you mention paying rent to parents or relatives, the system will categorize the claim as “high-risk.” For rental payments made to family members, failure to provide clear evidence of bank transfers will lead to the immediate rejection of the tax deduction claim.
Impact of providing false information and severe penalties
Providing incorrect or misleading information in an ITR can have far more serious consequences than just the cancellation of tax benefits.
- 200% Penalty: If it is proven that you deliberately used fake receipts to evade taxes, you may face a financial penalty of up to 200% of the tax amount.
- Interest Burden: Under Sections 234A and 234B, you will have to pay simple interest at the rate of 1% per month on the outstanding tax amount.
- Reopening of old ITRs: The Income Tax Department has the authority to reopen and review returns filed in the last four years. As a result, past instances of evasion can now be unearthed.
- Imprisonment: In cases of serious fraud or tax evasion, criminal proceedings and imprisonment under Section 276C can be initiated.
What should government employees do?
For West Bengal government employees or pensioners, taking a few essential steps while filing taxes is crucial:
- Use bank transfers: Try to pay rent only through bank accounts, net banking, or UPI. Avoid paying in cash, as it leaves no digital footprint.
- Organize your documents: Keep rent receipts and notarized rent agreements ready at hand.
- Verify AIS and Form 26AS: Before submitting your return, thoroughly check your Annual Information Statement (AIS) and Form 26AS to ensure there are no discrepancies in your income figures.
- Provide accurate information for other deductions: When claiming deductions under Section 80G (donations), 80D (health insurance), or 80E (education loan), ensure you have the correct receipts and payment history.
To avoid the IT department’s strict AI surveillance, it is wise to file your returns on time with accurate information and valid documentation.
