The Income Tax Department has initiated a thorough scrutiny process for “high-risk” income tax refund claims for the assessment year ( AY ) 2024-25, as part of a new standard operating procedure ( SOP ). This procedure aims to address the issue of fraudulent refund claims and ensure that refunds issued by the department are legitimate.
The verification of “high-risk” income tax refund claims now follows a systematic approach, as laid out in the new SOP for the financial year ending March 31, 2024. This approach specifically aims to detect whether false refund claims are being filed by individuals or systematically organized manner.
The SOP focuses on identifying suspicious claims that exhibit patterns of inflated deductions or exemptions. According to officials, the SOP highlights when multiple tax returns are filed using the same email address, which is a significant red flag for potential fraud. These returns often claim incorrect deductions, such as false house rent allowances (HRA), fake donations eligible under Section 80G of the Income Tax Act, or overstated business expenses.
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In cases flagged as “high-risk,” the Income Tax Department’s investigation wing is instructed to conduct detailed verifications. The directorate of income tax systems, under the Ministry of Finance, has issued guidelines to tax officials including Assessing Officers (AOs) and Tax Deduction at Source ( TDS ) charge officers. Additional investigation is mandated if a pattern of fraudulent refund claims is identified such as incorrect TDS credits, underreporting of income, or bogus expenses.
To facilitate this process, the department uses internal databases like the Insight portal and the e-filing portal to verify the identity of individuals associated with suspicious refunds. If these tools do not provide conclusive information, notices may be issued under Section 131(1A) of the Income Tax Act, which requires taxpayers to submit further documentation to substantiate their claims
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The scrutiny process is part of a broader effort by the tax department to reduce fraudulent claims through tools like the Risk Management System (RMS). The RMS identifies returns that warrant further investigation. Once flagged, an intimation is sent to the taxpayer, and if the discrepancies remain unresolved, formal scrutiny proceedings follow under Section 143(2) of the Income Tax Act, 1961.
The Government Official emphasized that their goal is not to harass taxpayers. If the claims are real, the case is closed, or else further inquiries will be conducted.
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