Tax Department Cracks Down On Bogus Deductions, Urges 'Voluntary Compliance' By Taxpayers

The Income Tax Department has launched a nationwide verification drive targeting widespread misuse of deductions and exemptions in income tax returns. In a release issued on July 14, the department said it is investigating a network of intermediaries, mainly ITR preparers, who have allegedly helped taxpayers file fraudulent claims under various sections of the Income-tax Act, 1961.

The tax department has stated that the misuse is not limited to any rare isolated cases, rather it suspects some organised rackets have surfaced. This involves inflated refund claims, fraudulent deductions and even false TDS filings. The misuse of deductions and exemptions spans across key sections like 10(13A), 80D, 80E, 80G, and others. The provisions typically offer relief for housing rent, donations, medical expenses, education loans and so on.

What’s worrying, officials say, is the range of people drawn into this. Among those suspected of making such claims are employees of multinational companies, government bodies, academic institutions, and startups.

The department believes that some taxpayers were lured by promises of higher refunds in exchange for a cut. In its investigations, the tax officials found that ITR prepares had created some temporary email IDs to file returns, leaving the actual taxpayers unaware of any follow-up communication or any notices issued by the department.

The official release informs that the department has used financial data from third parties, artificial intelligence tools and traditional ground intelligence to find out these cases and flag the said suspicious returns. The official team involved in follow-up search and seizure carried out investigations across Maharashtra, Delhi, Tamil Nadu, Gujarat, Punjab, and Madhya Pradesh - where it found evidence of such ITR frauds.

But it isn’t all punitive, at least not yet. Over the last year, the department has been nudging suspected taxpayers through SMS, emails, and even physical outreach campaigns to voluntarily revise their returns. Close to 40,000 taxpayers have done so in the past four months, correcting false claims amounting to over Rs 1,000 crore.Under its ‘Trust Taxpayers First', the Department has again urged the taxpayers for voluntary compliance. However, many remain non-compliant.

As the ongoing verification expands to more than 150 locations, authorities are hoping to dismantle the networks behind the misuse and reinforce the importance of honest, voluntary compliance.

For taxpayers, the department’s message is unambiguous: don’t let short-term refund temptations lead to long-term trouble.