Summary of this article
Rs 1,045 crore in fake tax refund claims uncovered; 40,000 notices sent.
Common frauds involve fake housing rent allowance (HRA), 80C/80D proofs, and bogus donations.
Penalties for tax fraud may go up to 200 per cent plus possible prosecution.
Always reconcile ITR with Form 26AS, AIS, TDS, and bank statements.
In July 2025, the Income Tax Department unearthed Rs 1,045 crore worth of fake refund claims. It’s investigating 15-plus professionals and intermediaries for issuing fake receipts and misrepresenting deductions. “To revise or justify returns, the IT Department has already issued over 40,000 notices. Bogus political donations, fictitious housing rent allowance (HRA) claims, and forged 80C/80D proofs were commonly found,” says Vivek Jalan, partner, Tax Connect Advisory Services.
Common tactics typically include means of increasing deductions or expenses to reduce the taxable income, such as claiming false house rent allowance, donations, or showing bogus expenses that are claimed to have been done for business purposes. “Recently, it has also been reported that some ITR preparers are filing bogus TDR returns to manage such false claims. At times, even taxpayers are unaware of such malpractices and blindly rely on the claim to get the tax burden lowered,” says Ritika Nayyar, Partner, Singhania and Co.
Historically, the ITRs of salaried taxpayers were not scrutinized as they paid higher taxes due to very few deductions available in comparison to businessmen, who can take the deductions of expenses. “Hence, false deductions by way of inflated House Rent Allowance (HRA), fabricated political donations under Section 80GGC/80GGB, and fake deductions under Sections 80C, 80D, etc were used by touts to lure salaried taxpayers into claiming false refunds,” says Jalan. Once Income tax refunds come, then the touts demand a percentage of the refunds.
Tax Misreporting Isn’t Just Costly, It’s Criminal
These acts can have severe legal and financial consequences. In cases where there is a bona fide mistake in under-reporting/mis-reporting any income, there could be a probable penalty up to 50 per cent of the tax due on that amount. So, in case it’s a case of pure tax evasion or defrauding the IT department, the penalty can be as high as 200 per cent of the tax due. This is in addition to the interest on the additional tax arising on those additions, making it hugely significant.
“Other than above, malafide and wilful tax evasions with significant amounts can even lead to criminal prosecutions, which could involve a fine or even imprisonment,” says Nayyar. Ultimately, the taxpayer is responsible for his ITR, so he must be very cautious in signing off on what he is filing.
Match All Records—Bank, TDS, 26AS, And AIS
The basics to verify accuracy are reconciling the data between the bank statements, TDS returns, form 26AS, and AIS. One should thoroughly check these documents to ensure correct and accurate ITR filing. Any discrepancy should be questioned with the tax agent. “One must not fall prey to false tax minimising strategies being promised and must take confirmations or legal provisions as backup of what is being suggested,” says Nayyar.
While at times remedy may be available if the taxpayer was genuinely not aware of the malpractices of the ITR preparers or the agents, the road leading to it, consisting of such legal battles, is quite cumbersome and mentally taxing, so better to be vigilant and avoid such hardships and not get caught up in these complexities.
