Income Tax Department Cracks Down On Bogus Claims Of Deductions And Exemptions

The government on Monday said that 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).

The IT department launched a verification exercise across 150 premises to collect crucial evidence, including digital records, to crack down on networks behind this scheme and ensure accountability under the law.

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, reads a finance ministry statement.

Fake claims hinder direct tax collection growth

The move comes after the central government’s net direct collections registered much lower growth than expected. Fake refund claims caused the decline.

Refunds between April 1- July FY 26 stood at Rs 1.01 lakh crore, up by 38% on year.

The IT department revealed that this action follows a detailed analysis of the misuse of tax benefits under the Income-tax Act, 1961, often in collusion with professional intermediaries.

To identify suspicious patterns, the IT Department has leveraged financial data received from third-party sources, ground-level intelligence, and advanced artificial intelligence tools.

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, according to the official statement.

The Finance Ministry further revealed that the IT department carries out extensive outreach through SMS, emails, advising suspects to revise their returns. The department also undertook physical outreach programs.

As a result, approximately 40,000 taxpayers have updated their returns in the last four months, voluntarily withdrawing false claims amounting to ₹1,045 crore.

However, many remain non-compliant, possibly under the influence of the masterminds behind these evasion rackets.

The finance ministry vowed strict action against the fraudulent claims, which includes both penalties and prosecution.

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