Summary of this article
Both the individuals withdrew the flagged political donation claims, but in their revised returns, they again added a fresh set of questionable deductions to reduce their taxable income and barely pay any extra tax. With the tax department’s automated systems running in the background, such a strategy will eventually backfire, leading to fines as well as penal action by the taxmen.
The Income Tax Department in Hyderabad recently prosecuted two city-based software professionals for allegedly trying to cheat the system with bogus deduction claims, not once, but twice. Officials said the two claimed fake deductions under Section 80GGC of the Income-tax Act, 1961, which gives tax relief on donations to political parties.
On scrutiny, those donations turned out to be fictitious. Instead of going straight for penalties, the department gave them a chance to fix their filings using the updated return facility (ITR-U) which is a provision meant to help taxpayers correct genuine mistakes or missed income disclosures.
However, what happened next is what caught the department’s attention.
Claiming the Fake Tax Deduction Twice
According to a report by Times of India, both the individuals withdrew the flagged political donation claims, but in their revised returns, they again added a fresh set of questionable deductions to reduce their taxable income and barely pay any extra tax.
In one case, the taxpayer reportedly made false claims worth about Rs 1.20 crore over three years, including not just political donations but also exemptions on gratuity and retirement benefits that were never actually paid. The revised return showed a small increase in taxable income, enough to make it look like the taxpayer was complying, while the bulk of the evasion remained intact.
The second techie allegedly claimed bogus deductions of Rs 1.02 crore over three years. Investigators say they recovered mobile chats between the taxpayer and his auditor discussing how to pad up deductions to cut the tax bill. This, officials said, left little room to argue that it was an innocent mistake.
Penalties & Prosecution For Claiming Bogus Tax Deductions
The Income Tax Department has now filed prosecution under Sections 276C(1) and 277 of the Income-tax Act, 1961 on the individuals. These carry jail terms of six months to seven years and fines if the amount of evasion crosses Rs 1 lakh.
In recent months, the Income Tax Department has been cracking down on inflated or fake claims, particularly under popular deduction sections like 80C, 80D, 80G and 80GGC. It even released an official notification to inform taxpayers regarding the recent spike in fraudulent claims.
As reported by Outlook Money earlier, tax officers have flagged the growing misuses of fake deductions through forged donation receipts a d inflated insurance premiums. The department has also warned that ITR-U is not a backdoor for introducing new false claims, because doing so can turn a simple correction into a criminal offence.
Things Taxpayers Should Do to Avoid Making Wrong Claims
Here are some key things taxpayers should do to avoid mistakenly making a wrong claim:
At the time of filing income tax return (ITR) taxpayers should match their claims with the AIS and Form 26AS. This would help them avoid mismatches between self-declared and third-party-reported data in the returns.
Keep a record of all supporting documentation for the claimed deductions. The documentation records, according to experts, should be kept for at least six years.
If you do not have the complete documentation available or ready, it’s better to avoid claiming deductions.
Also, if taxpayers have any doubt regarding their exemptions or deductions, there’s no harm in consulting a tax professional to ensure you don’t end up making a wrong claim.
Just like in the case of these two techies, for many taxpayers, the prospect of rounding up expenses or maximising the deductions without due documentation may seem appealing - however, it is important to note that with the tax department’s automated systems running in the background, such a strategy will eventually backfire, leading to fines as well as penal action by the Income Tax Department.
