Crackdown on false claims in ITR for big refunds

Around 40,000 taxpayers have revised their income tax (I-T) returns in the past four months, withdrawing fraudulent claims worth 1,045 crore following a large-scale crackdown by the I-T department on bogus deductions and exemptions, according the Central Board of Direct Taxes (CBDT).

CBDT initiated a large-scale verification operation across multiple locations in the country, targeting individuals and entities facilitating fraudulent claims of deductions and exemptions in Income Tax Return (ITRs). This action follows a detailed analysis of the misuse of tax benefits under the Income-tax Act, 1961, often in collusion with professional intermediaries.

“Investigations have uncovered organised rackets operated by certain ITR preparers and intermediaries, who have been filing returns claiming fictitious deductions and exemptions in return for commissions. These fraudulent filings involve the abuse of beneficial provision, with some even submitting false TDS returns to claims excessive refunds,” CBDT said in a statement.

These rackets often file returns using temporary email IDs, which are later abandoned, resulting in official notices going unread.

The tax department’s analysis reveals rampant misuse of deductions under sections 10(13A), 8OGGC, 8OE, 8OD, 8OEE, 8OEEB, 8OG, 8GGA, and 8ODDB.

These findings are further substantiated by recent search and seizure operations conducted in Maharashtra, Tamil Nadu, Delhi, Gujarat, Punjab, and Madhya Pradesh, where evidence of fraudulent claims was found to have been used by various groups and entities,” the CBDT stated.

The department has warned of tough measures, including penalties and prosecution wherever applicable, against those who continue to make fraudulent claims.

Taxpayers have been advised to file accurate particulars of their income and contact details, and not to fall prey to agents or intermediaries promising undue refunds.

The income tax (I-T) department has tightened scrutiny against taxpayers fraudulently claiming large deductions – such as inflated donations to charities, NGOs or political parties, or exaggerated house rent allowance (HRA) claims.

The government has been following a policy of trust with the taxpayers. Tax returns are now paperless, and people don’t have to attach proofs for exemptions and deductions while filling. Also returns are processed quickly, and refunds come faster.

But the government’s policy of trusting the taxpayer has kind of backfired due to certain unscrupulous elements abusing the tax system.

Tax experts warn that these practices can now be easily caught. The tax department has new tools, they use data from banks, employers, and other places. They also use advanced software and artificial intelligence (AI) to spot anything unusual. Even small claims can be questioned if they don’t match a person’s income or lifestyle.

Tax experts advise people to keep proper document for any claims they make, like bills for HRA, leave travel concession (LTC) travel tickets, or receipts for donations. A fake claim of 10,000 can bring trouble people may have to pay penalties, interest, or even face court cases in serious matters.

If the department finds a false claim, the taxpayers may have to pay tax on the amount of the disallowed claim, plus interest of 1 per cent per month until the tax is paid. On top of that, there can be a penalty of 50 per cent to 200 per cent of the tax wrongly avoided – fake claims attract a penalty of 200 per cent.

The CBDT has warned taxpayers to not trust agents who promise big refunds through false claims, and to file honest returns.

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