Income Tax Department Launches Nationwide Crackdown on Fake Deduction Claims in ITRs

New Delhi, July 15, 2025 — The Income Tax Department has initiated a large-scale verification drive across multiple states, targeting fraudulent claims of deductions and exemptions made through Income Tax Returns (ITRs). The operation, launched on July 14, is part of a concerted effort by the Finance Ministry to tackle tax evasion rackets involving professional intermediaries and unauthorised agents.

In a press release on Monday, the ministry said the probe has exposed organized rackets led by certain ITR preparers and middlemen who manipulate the system to file fictitious deductions, excessive tax exemptions, and false TDS returns, all aimed at securing inflated refunds.

Technology-Led Investigations Unearth Massive Fraud

The department has harnessed advanced analytics, third-party data, artificial intelligence, and field intelligence to detect irregular filings. Recent search and seizure operations in states like Maharashtra, Tamil Nadu, Delhi, Gujarat, Punjab, and Karnataka have unearthed solid evidence of systemic abuse of the Income Tax Act.

The key deductions and exemptions found to be rampantly misused include:

  • Section 10(13A) – House Rent Allowance

  • Section 10(14) – Special allowances

  • Section 80GG – Rent paid without HRA

  • Section 80D – Medical insurance premium

  • Section 80E/80EE/80EEA – Education and housing loan interest

  • Section 80G/80GGA – Donations to charitable institutions

In many cases, salaried employees from MNCs, PSUs, and government departments were found claiming inflated or fabricated deductions without any actual eligibility.

Fictitious Refunds, Manipulated Returns Costing Exchequer

The ministry stressed that such fraudulent actions are causing substantial revenue losses, increasing pressure on honest taxpayers, and delaying genuine refunds.

Some individuals were also found intentionally inflating income figures or mismatching deduction details to manipulate refund mechanisms, only to withdraw the claims later during scrutiny to evade penalties.

Stern Action Ahead: Penalties, Prosecution on the Cards

Reaffirming its commitment to taxpayer trust and fairness, the Central Board of Direct Taxes (CBDT) said it will maintain a balanced approach — supporting compliant taxpayers while taking strict legal action against willful tax evaders.

Key measures underway include:

  • Scrutiny of suspect ITRs

  • Withholding of refunds

  • Initiation of penalty and prosecution proceedings

  • Expanded investigation of tax-preparation networks

“These operations will continue and are expected to widen in scope to dismantle the rackets and hold guilty parties accountable under the law,” the statement read.

Government’s Advisory to Taxpayers

The Finance Ministry has once again advised taxpayers to:

  • Submit accurate income details

  • Avoid relying on unauthorised agents or intermediaries

  • Verify all deductions with genuine proof

  • Use official IT Department portals and certified professionals

The government reiterates its message: “Trust Taxpayers First” — but with zero tolerance for willful tax evasion.

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