Income tax dept cracks down on bogus claims of deductions by employees

The I-T department initiated a large-scale verification operation across multiple locations in the country on Monday, targeting individuals and entities facilitating fraudulent claims in ITR filings

The Income-Tax Department has found organised rackets operated by some returns preparers and intermediaries across the country, filing income-tax returns (ITRs) on behalf of their clients -- including employees of multinational companies, public sector firms, government bodies, academic institutions, and entrepreneurs -- to fraudulently claim exemptions and refunds, the Finance Ministry said.

To identify suspicious patterns, the I-T department has leveraged financial data received from third-party sources, ground-level intelligence, and advanced artificial intelligence tools. (Representational image)

The department is now poised to take stern action against continued fraudulent claims, including penalties and prosecution wherever applicable, it said in a statement on Monday. “The ongoing verification exercise across 150 premises is expected to yield crucial evidence, including digital records, that will aid in dismantling the networks behind these schemes and ensure accountability under the law,” it said. Further investigations are currently underway, it added.

“Taxpayers are again advised to file correct particulars of their income and communication coordinates and not be influenced by advice from unauthorised agents or intermediaries promising undue refunds,” it said. The department initiated a large-scale verification operation across multiple locations in the country today, targeting individuals and entities facilitating fraudulent claims of deductions and exemptions in ITR filings, the statement said.

“This action follows a detailed analysis of the misuse of tax benefits under the Income-tax Act, 1961, often in collusion with professional intermediaries,” it added. These fraudulent filings involve the abuse of beneficial provisions, with some even submitting false tax deducted at source (TDS) returns to claim excessive refunds.

To identify suspicious patterns, the department has leveraged financial data received from third-party sources, ground-level intelligence, and advanced artificial intelligence tools. “These findings are further substantiated by recent search and seizure operations conducted in Maharashtra, Tamil Nadu, Delhi, Gujarat, Punjab, and Madhya Pradesh, where evidence of fraudulent claims was found to have been used by various groups and entities,” it said.

“Exemptions have been claimed without valid justification. Employees of multinational companies (MNCs), public sector undertakings (PSUs), government bodies, academic institutions, and entrepreneurs are among those implicated,” it said.

Taxpayers are often lured into these fraudulent schemes with promises of inflated refunds in return for a commission. Despite a fully e-enabled tax administration system, ineffective communication remains a significant hurdle in assisting taxpayers. 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.

The ministry said the government promotes voluntary compliance, and its efforts have some positive outcomes. “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,” it said. In line with its guiding principle of “Trust Taxpayers First”, the department has been promoting voluntary compliance.