Income Tax Dept cracks down on bogus claims of tax deductions like 80GGC; What can taxpayers do?

Time of India

4 days ago

Academy
Empower your mind, elevate your skills
What did the Income Tax Department say?
The Income Tax Department 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 Returns (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. These fraudulent filings involve the abuse of beneficial provisions, with some even submitting false TDS returns to claim excessive refunds.
Analysis reveals misuse of deductions under Sections 10(13A), 80GGC, 80E, 80D, 80EE, 80EEB, 80G, 80GGA, and 80DDB. Exemptions have been claimed without valid justification. Employees of MNCs, PSUs, government bodies, academic institutions, and entrepreneurs are among those implicated.
Taxpayers are often lured into these fraudulent schemes with promises of inflated refunds in return for a commission.
What is the solution to get out of this mess?
FY 2020–21 (AY 2021–22), the updated return (ITR-U) may be filed up to March 31, 2026;
FY 2021–22 (AY 2022–23), the ITR-U deadline is March 31, 2027;
FY 2023–24 (AY 2024–25), the ITR-U filing window remains open until March 31, 2029.
What should taxpayers do whose time limit to file ITR-U is already over?
'In case the taxpayer fails to file a revised ITR or an updated ITR within the prescribed time to withdraw the wrong claim in the ITR, he will have to face stern action from the tax department if notice is issued under Section 143(2) or 148 of the Income Tax Act, 1961.
If the tax notice under Section 143(2) or 148 is not yet issued and time to file an updated ITR is available, taxpayers should consider filing an updated return to avoid stern tax consequences. However, if time to file updated return is not available, the taxpayer may consider voluntarily paying applicable tax and interest thereon and may approach the tax authorities by making an application under Section 119(2)(b) to accept the revised return with condonation.
In case the voluntary tax and interest is paid on wrong claim before the tax department issues any notice, it will have some possibility to argue on penalty and consequential prosecution.'
'Recently in Pune ITAT in ITA No. 663/PUN/2025 involving a case where a taxpayer had made wrong/excess claim in his ITR and subsequently voluntarily paid tax and interest thereon before issuance of notice by the tax department.
Subsequently, his ITR was taken under scrutiny by issuing notice under Section 148 of the Income Tax Act, 1961. This taxpayer filed his ITR and withdrew the wrong claim on which he had voluntarily paid tax and interest before notice under Section 148 was issued by the tax department.
The tax department accepted the ITR but levied the penalty equal to 200% of the tax payable on wrong claim. In appeal, the ITAT has deleted the penalty by observing that the taxpayer has voluntarily paid the tax before the tax department issued notice to him under Section 148.'
If during an income tax raid, a taxpayer is found to have claimed bogus deductions to reduce taxable income, can they be jailed?
Where the amount of tax sought to be evaded exceeds Rs 25 lakh, the offence is punishable with rigorous imprisonment for a term ranging from six months to seven years, along with a fine.
In cases where the amount involved is Rs 25 lakh or less, the offence is punishable with rigorous imprisonment for a term ranging from three months to two years, along with a fine.
Accordingly, in addition to civil penalties and interest, prosecution and imprisonment may be initiated where deliberate concealment or misreporting of income through false claims is established during search, seizure, or assessment proceedings.
In the last few days, the Income Tax Department has been busy with a bunch of raids, search and seizure operations across various states in India. As a result of this massive operation, the tax department said that they found that many employees of MNCs, PSUs, and others fell for the promises of certain professionals who claimed they could get them bigger tax refunds in exchange for a commission.While the situation might not seem very dangerous, especially if the falsely claimed tax deductions are minor, keep in mind that the law allows the court to even sentence you to jail.In addition to the tax and interest, you could face a penalty of up to 200% of the tax payable on wrong claims under Section 270A for under-reporting income due to misreporting, and you may also be punishable with imprisonment for willful attempt to evade tax.This is the point where you start to wonder if claiming false deductions to reduce your tax liability is really worth it. The answer is NO. Just to save a few thousand rupees, you could be risking imprisonment and facing penalties of up to 200%.Keep reading to learn what the tax department has to say and how you can protect yourself if there is still time.The Income Tax Department said on July 15, 2025:The biggest issue here in this situation is many taxpayers were completely unaware of any tax notices being sent against their PAN. The tax department said: 'It has been observed that such ITR preparers often create temporary email IDs solely for filing bulk returns, which are later abandoned, resulting in official notices going unread.'Also read: Six changes in ITR-2 Excel Utility that all taxpayers should know before ITR filing for AY 2025-26 The first step is to acknowledge that you may have incorrectly claimed a tax deduction to reduce your tax liability. Once you have accepted this fact, then immediately file an updated ITR (ITR-U) if the time limit allows. In Budget 2025, the finance minister extended the time limit to file ITR-U from 24 months earlier to 48 months.Chartered Accountant Mohit Gupta, explains:Gupta says: 'This filing window becomes operative from April 1 of the relevant assessment year and remains available for a continuous period of 48 months, subject to the condition that no disqualifying proceedings (such as search, requisition, or reassessment) have been initiated prior to the date of filing.'Chartered Accountant Gopal Bohra, Partner – Direct Tax , N. A. Shah Associates LLP says that ITR-U can be filed on payment of additional income tax and the additional income tax would be 25% or 50% or 60% or 70% of aggregate of tax and interest payable if ITR-U is filed before completion of 12 months or 24 months or 36 months or 48 months, respectively, from the end of the relevant assessment year.The issue arises for those taxpayers who want to correct their mistake of claiming false tax deductions, but unfortunately, the time limit to file ITR-U has already passed for them.Also read: Capital gain tax ready reckoner: Listed equity, unlisted equity, gold, house property, and other assets for ITR filing FY 2024-25 (AY 2025-26) Bohra, explains:Bohra shares a recent case study where a taxpayer from Pune got relief from penal consequences. Bohra says:Experts with whom ET Wealth Online spoke said that a taxpayer can be sentenced to jail by a court in tax evasion cases.Gupta says that in cases where a taxpayer is found to have wilfully claimed bogus or fictitious deductions with the intent to evade tax, such conduct may attract penal consequences under Section 276C of the Income Tax Act, 1961.According to Gupta, Section 276C specifically deals with the offence of wilful attempt to evade tax, interest, or penalty.Gupta explains:Bohra also highlights that Section 270A will be applicable in such cases too.Bohra explains: 'If the assessment is completed denying the claim of the taxpayer as bogus or fraudulent, the tax department shall levy tax and interest thereon. Apart from tax and interest, a penalty equal to 200% of the tax payable on wrong claim can also be levied under section 270A for under reporting of income in consequence to misreporting and he may be punishable with imprisonment for willful attempt to evade tax.'