Income Tax Department Targets Fake Deduction and Exemption Claims

Introduction

As the deadline for filing Income Tax Returns (ITR) for FY 2024–25 approaches, the Income Tax Department has initiated a nationwide crackdown on fraudulent deduction and exemption claims. Taxpayers have been cautioned to file accurate returns and avoid unauthorised agents who promise inflated refunds through false claims.

The large-scale verification drive, launched on 14 July 2025, targets individuals and intermediaries misusing provisions of the Income-tax Act, 1961. Authorities have identified cases involving fictitious deductions, manipulated TDS returns, and excessive refund claims.

What Triggered the Crackdown?

Advanced data analytics and AI-driven risk assessment tools revealed widespread abuse of tax benefits. The key red flags included:

Filing ITRs with fake or inflated deductions and exemptions
Manipulation of TDS returns to claim higher refunds
Use of temporary or fake email IDs for bulk return filings to evade detection

States Covered Under the Operation

Search and seizure actions were carried out at over 150 locations across:

Maharashtra
Tamil Nadu
Delhi
Gujarat
Punjab
Madhya Pradesh

Investigations indicate that organised groups and entities were systematically exploiting the tax framework through falsified claims.

Commonly Misused Deduction Sections

The probe uncovered fraudulent claims under multiple sections of the Income Tax Act, including:

Section 10(13A) – Fake or inflated HRA claims using bogus rent receipts
Section 80GGC – Fictitious donations to political parties
Section 80E – Forged education loan interest documents
Section 80D – Inflated or non-existent health insurance premiums
Sections 80EE / 80EEB – Claims by ineligible applicants for home or EV loan interest
Sections 80G / 80GGA – Donations to non-existent or unregistered NGOs
Section 80DDB – Bogus medical bills for treatment of specified illnesses

Who Is Under Scrutiny?

The action is not limited to businesses or high-net-worth individuals. The Department has identified violations across a wide spectrum, including:

Employees of multinational companies
Public Sector Undertakings (PSUs)
Government employees
Educational institution staff
Entrepreneurs and small business owners

Many taxpayers were allegedly misled by intermediaries who charged a commission in exchange for higher refunds. In several cases, individuals were unaware that false information had been submitted on their behalf—an offence punishable under law.

Malpractices Identified

Authorities flagged several unethical filing practices, such as:

Bulk filing of returns using fake or temporary email IDs
Abandoning email accounts after submission, blocking official communication
Providing incorrect contact details on the income tax portal
Promoting fraudulent refund schemes through social media and online platforms

These practices often prevented taxpayers from receiving compliance notices or show-cause communications.

Legal Consequences

The Income Tax Department has warned of strict action against continued non-compliance, including:

Penalties under Section 270A for under-reporting or misreporting of income
Prosecution under Section 276C for willful tax evasion
Action under Section 277 for false verification

The ongoing verification exercise is expected to uncover digital evidence and financial trails to dismantle organised fraud networks.

Advisory to Taxpayers

Taxpayers are strongly advised to:

File accurate returns with genuine income and deduction details
Maintain updated and valid contact information on the tax portal
Avoid unauthorised agents promising unrealistic refunds

Those who have already filed returns through third parties should review them immediately and take corrective action if discrepancies are found.

What Taxpayers Should Do Now

File ITRs with valid supporting documents
Verify income and deductions with Form 26AS, AIS, and TIS
Engage only qualified tax professionals or Chartered Accountants
Keep contact details updated on the Income Tax portal

What to Avoid

Submitting fake medical bills, rent receipts, or donation proofs
Filing returns without verifying submitted information
Ignoring notices or communications from the Income Tax Department

Key Takeaway

This nationwide crackdown sends a strong message: the Income Tax Department now has the technology and intelligence to detect fraudulent claims in real time. With filing deadlines fast approaching, voluntary correction is the safest option.

Taxpayers should avoid refund scams and remember that claiming ineligible deductions is both risky and illegal.

Need Help Filing or Revising Your ITR?

If you’re uncertain about your deductions or concerned about errors in your return, Auriga Accounting pvt. ltd. can help. Our tax experts ensure accurate filing, compliance with tax laws, and hassle-free revisions if required.

To qualify for the Direct Tax Vivad se Vishwas (DTVSV) Scheme, 2024, taxpayers must meet one or more of the following conditions as of July 22, 2024:

Pending Appeals: Taxpayers with appeals pending before the Commissioner of Income Tax (Appeals) [CIT(A)], Income Tax Appellate Tribunal (ITAT), High Court, or Supreme Court.
Objections before the DRP: Taxpayers who have filed objections with the Dispute Resolution Panel (DRP) under Section 144C of the Income Tax Act, where the DRP has not yet issued directions to the Assessing Officer (AO).
DRP Directions Awaiting Final Order: Taxpayers for whom the DRP has issued directions to the AO, but the final assessment order is still pending.
Pending Revision Applications: Taxpayers with revision applications pending under Section 264 of the Income Tax Act.

About the Author

Dakesh

Dakesh simplifies complex legal regulations into clear, practical guidance, enabling entrepreneurs to remain compliant and build sustainable, scalable businesses with confidence.

January 8, 2026