New ITR 1, ITR-4: 200 Per Cent Penalty, Interest For Faking Tax Deductions

If you are planning to stretch the truth while filing your income tax return (ITR) this year, maybe inflating your investment declarations or adding a deduction you never made, it’s probably not worth the risk at all. The tax department has quietly, but firmly shut down many of the old loopholes.

A large-scale investigation in January 2025 by the income tax department had uncovered more than 90,000 salaried individuals who had claimed false deductions. These cost the exchequer over Rs 1,070 crore in unpaid taxes. Following the discovery, the income department has now made some changes in these two income tax forms to curb instances of false declarations in ITRs.

Starting this year, forms ITR-1 and ITR-4 have been reworked to require specific, traceable proof for deductions. It is no longer enough to simply declare an investment or premium payment in a lump sum. Now, every claim needs to be supported by proof.

For instance, if you are claiming benefits under Section 80C, such as for insurance premiums, equity-linked savings schemes (ELSS) or investment in Public Provident Fund (PPF), you will need to provide document IDs or policy numbers. If you have taken health insurance and want to claim Section 80D, the insurer’s name and policy number have to be mentioned mandatorily.

Deductions for education or home loans, require lender details, loan account numbers, and sanction dates. Even if you are claiming a deduction for buying an electric vehicle under Section 80EEB, you will now have to disclose the vehicle’s registration number.

You should also double check your house rent allowance (HRA) details while filing your ITR. The key documents required to keep this in check are rent receipts, your landlord’s Permanent Account Number (PAN) (if rent is above Rs 1 lakh per year). Moreover, also make sure that your lease agreements are accurate. Misreporting would result in the rejection of your HRA claim.

Stricter Penalties and Checks

The changes are not just in the ITR forms, but the way the system works. These details are being matched against data in your Annual Information Statement (AIS), a tool that gives the tax department a detailed look into your financial transactions. Any mismatch, even unintentional, can raise a red flag.

And the penalties, if you are caught, are harsh. The law allows for up to 200 per cent penalty on the tax evaded. Add to that 24 per cent annual interest, and in serious cases, even prosecution under Section 276C of the Income-tax Act, 1961.