Is it permisible to exaggerate a situation as a joke? And is it permissible to lie in a joke. is it permissible to say a story and then say just kidding that never happened?
Answer:
All perfect praise be to Allah, The Lord of the Worlds. I testify that there is none worthy of worship except Allah, and that Muhammad, sallallaahu ‘alayhi wa sallam, is His slave and Messenger.
We did not understand your first question “exaggerate a situation as a joke.”
However, lying when joking is not permissible. Abu Hurayrah, may Allaah be pleased with him, narrated that the Prophet, sallallaahu ‘alayhi wa sallam, said: “The slave will not complete faith unless he refrains from lying when joking, and refrains from arguing even when he is upon the truth.” [Ahmad, and Al-Albaani classified it as authentic]
Besides, Al-Bukhaari reported in Al-Adab Al-Mufrad, and Ahmad in his Musnad that Ibn Mash’ood, may Allaah be pleased with him, narrated that the Prophet, sallallaahu ‘alayhi wa sallam, said: “Lying is not allowed neither when being serious nor when joking.”
There is no doubt that telling a story whereby the listeners would think that it is real while in reality it is not is a lie. Intending of inform them that it is not true after having told them the story does not make it permissible for you to lie.
For more benefit, please refer to Fataawa 350794 and 335944.
Allah knows best.