In light of recent developments, the Income Tax Department is intensifying its scrutiny of Income Tax Returns (ITR), with a particular focus on potentially fraudulent tax deductions. This crackdown follows the exposure of a widespread network of intermediaries who assisted taxpayers in claiming illegitimate refunds by fabricating or inflating deductions under the Income Tax Act.

Sections Under Increased Scrutiny

The Income Tax Department has identified several sections of the Income Tax Act, 1961, that are prone to misuse. These include:

• Section 80C: This popular section allows deductions for investments like life insurance premiums, Public Provident Fund (PPF), Equity Linked Saving Schemes (ELSS), and home loan principal repayment. The maximum deduction under this section is ₹1.5 lakh.
• Section 80D: This section provides deductions for health insurance premiums. The deduction limit varies based on the age of the individual, with higher limits for senior citizens.
• Section 80G: This section covers donations made to charitable organizations and certain funds. The deduction amount can vary from 50% to 100% of the donation, depending on the donee.
• Section 80GGC: Allows for deductions on donations made to political parties.
• Section 80E: Provides deductions for interest paid on education loans.
• Section 80EE & 80EEB: Pertain to deductions on interest paid on home loans and loans for electric vehicles, respectively.
• Section 80GGA: This covers donations for scientific research or rural development.
• Section 80DDB: This section allows deductions for expenses incurred on medical treatment for specified diseases.
• Section 10(13A): This section pertains to the House Rent Allowance (HRA) exemption.

The department's analysis indicates that taxpayers often make false claims under these sections without valid justification, with some even submitting false Tax Deduction at Source (TDS) returns to claim excessive refunds.

How Bogus Claims are Being Made

Investigations have revealed that some intermediaries create extensive networks of agents who file returns on a commission basis, inflating or fabricating deductions. Many of these bogus claims are linked to donations made to Registered Unrecognized Political Parties (RUPPs) and certain charitable institutions. These entities are often non-operational and serve as conduits for routing unaccounted money and issuing fake donation receipts.

What You Should Do

Given the heightened scrutiny, taxpayers should take the following steps to ensure compliance and avoid potential penalties:

• Review Your ITR: Carefully examine your ITR for any discrepancies or errors, especially in the sections mentioned above.
• Ensure Accuracy and Verifiability: Make sure that all deductions and exemptions claimed are accurate and supported by valid documentation. The Income Tax Department emphasizes that all claims must be verifiable.
• Update Contact Information: Ensure that your mobile number and email ID are correctly registered with the Income Tax Department to receive timely updates and communications.
• Respond to Notices Promptly: If you receive a notice from the Income Tax Department, respond promptly and provide all the necessary information and documents.
• Revise Your Return (If Necessary): If you identify any incorrect claims, revise your return at the earliest. You can submit corrections through a rectified or updated return under Section 139(5) of the Income Tax Act.
• Beware of Scams: Be cautious of fake emails and messages claiming tax refunds. Verify all tax-related information only through the official Income Tax Department website.
• Seek Professional Advice: If you are unsure about any aspect of your ITR or the scrutiny process, seek guidance from a qualified tax professional.

Consequences of Filing False Claims

Taxpayers who claim false deductions and exemptions to evade taxes are liable to face significant penalties, including imprisonment. The Income Tax Department has warned that it is closely monitoring such practices and may initiate strict action against offenders.

By taking these precautions, taxpayers can ensure compliance, avoid potential penalties, and contribute to a fair and transparent tax system.