Income Tax Department Cracks Down on Fake Deductions and Exemptions in ITRs
The Central Board of Direct Taxes (CBDT) has launched a massive verification drive across the country targeting fraudulent claims of deductions and exemptions in Income Tax Returns (ITRs) filed for Assessment Year 2025–26. This action comes as part of the government’s enhanced efforts to ensure tax transparency and eliminate misuse of beneficial provisions under the Income-tax Act, 1961.
What Triggered This Action?
The department’s action was driven by a detailed data analysis and intelligence inputs highlighting the misuse of deductions and exemptions, often facilitated by certain tax intermediaries and agents. These intermediaries have been found to:
- File ITRs with inflated or fictitious deductions
- Fabricate false TDS entries to claim higher refunds
- Use temporary email addresses for bulk filing, ignoring post-filing notices
This crackdown has covered over 150 locations across key states like Maharashtra, Tamil Nadu, Delhi, Gujarat, Punjab, and Madhya Pradesh.
Sections Being Misused
Investigations have revealed rampant misuse under the following sections:
- Section 10(13A): House Rent Allowance (HRA)
- Section 80C: LIC, PPF, tuition fees, etc.
- Section 80D: Medical insurance premium
- Section 80E: Education loan interest
- Section 80EE / 80EEA / 80EEB: Home loan and electric vehicle interest
- Section 80G / 80GGA / 80GGC: Donations
- Section 80DDB: Medical treatment for specified diseases
In many cases, employees of MNCs, PSUs, government bodies, and entrepreneurs were found to be involved, either directly or through third-party tax filing agents.
Voluntary Compliance Encouraged
CBDT highlighted that its goal is not just punitive action but also to encourage voluntary compliance. Over the past year, they’ve used:
- SMS & email nudges to suspected taxpayers
- On- and off-campus outreach programs
- Digital tools for real-time TDS and deduction validation
As a result, over 40,000 taxpayers voluntarily updated or revised their returns, collectively withdrawing false refund claims exceeding ₹1,045 crore.
What’s Next?
The department has warned of penalties and prosecution for continued non-compliance. The ongoing raids and verification exercises are expected to reveal digital trails, including:
- IP logs
- Device IDs
- Coordinated email trails
- Misused bank account data
This will help dismantle the networks behind these schemes and ensure accountability under the law.
Key Takeaways for Taxpayers
- Do NOT fall for agents promising “higher refunds” through fake deductions.
- Use only valid, supported deductions with documentary evidence.
- Ensure that your ITR is filed using your correct contact details – not temporary or agent-controlled emails.
- Consult a qualified Chartered Accountant for compliant filing.
Final Word
The CBDT’s press release is a clear warning to taxpayers:
Shortcuts in tax filing can lead to long-term trouble.
Stay compliant. File truthfully. And if you’ve filed incorrectly – this is the time to revise!
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