Can a Couple Be Fired for Claiming HRA Exemption? Seeking Expert Advice on Legal Boundaries

I need some information and would request the experts to help me with it. Can an organization penalize a couple for claiming HRA exemption to the extent that they are terminated? Isn't it the IT law that is to decide on the action? Request for your help.

Regards,

Thanks, Mr. Arora. Here, the issue was that the couple was unaware of the law, and both have submitted for HRA exemption. They didn't share, and it was the total rent for each individual. They did it last year as well; however, this year the company asked them to leave, stating that the documents are forged. So, I wanted to know, can an HR take such a step for documents related to the IT department?

Legal Obligation to Report Tax Evasion

If a company becomes aware that an employee is attempting to evade income tax by submitting forged documents, I think it is legally obliged to inform the relevant tax authorities. Tax evasion is a crime and should be reported.

Regards,

I agree with Mr. Arora, and in my view, not everyone in an organization has the same level of knowledge about taxation. It is the responsibility of the Accounts in Charge or the Finance Head to guide the couple regarding any forged documents as soon as they receive the investment declaration form or analyze the documents. It is the employer's duty to deduct TDS from the salary, so if any forged documents are submitted by the couple, they can be addressed at the time of deduction. I also believe that no one has experience in all fields. Since this subject might not be relevant to the couple, they could have committed forgery by mistake or unknowingly. Therefore, the issue should be addressed, and they should be given a warning or some form of punishment, but not to the extent of termination.

Thanks & Regards,
Saji

I totally agree with Saji. I feel it's the responsibility of HR and Finance to guide the employees. Moreover, the mistake was made unknowingly, and the same documents were accepted the previous year. So, the question arises as to why the previous year's documents were considered. They are planning for legal action and would appreciate your inputs on the same.

Employer can lose the legal battle. Irrespective of whether the mistake was made unknowingly or knowingly, termination of service was totally unjustified. The employer does not have the authority to take any penal action on behalf of the Income Tax Authorities. At most, the employer could have reported the matter to the IT authorities for reassessment of the income tax. Only the Assessing Officer was authorized to impose any penalty, as prescribed by law for less deposit of tax or submission of false return by the employees.

Legal Action and Forged Documents

How can they pursue legal action since the couple has not caused any harm to the company? Regarding the forged documents, when the company discovered they were forged, they should have considered them null and void and deducted the tax without considering the HRA exemption. If the company has already filed a legal suit, the employee can also file a cross-legal suit against the employer. They can also approach the labor court for assistance. The couple does not need to worry at all since even legal action will not benefit the employer. As mentioned by Mr. Dhingra, the couple can file a revised return, which will resolve their concerns.

Thanks & Regards,
Saji

Oh my god, such a big issue for a meager HRA receipt. I, being in accounts, have seen so many cases where the employee submits fake rent receipts for HRA exemption, and even the employer accepts it. Sometimes, the employer even encourages employees to give fake rent receipts.

HRA Exemption and TDS Deduction

Based on the declaration of the employee, the disbursing officer has to deduct TDS accordingly. Also, if the monthly HRA is less than 3000, then the DDO has the option of not collecting rent receipts and just giving HRA exemption based on the declaration. A rent receipt is not mandatory if the HRA earned per month is less than 3000.

Reporting to IT Authorities

Even if you report this to IT authorities, the company/employer will face more stringent action as, in spite of knowing they are a couple, he accepted their claims for HRA exemption. This might be in terms of tax planning; the husband and wife forgot to tell each other. According to them, they did not know the other is also going to claim HRA exemption. The maximum that the couple will need to pay is some fine with interest, that's all.

Dear Members,

Please read carefully!! Fake rent receipt could cost you your job: HC - News18