Income Tax Dept Exposes Massive ₹1,070 Crore Fraud: 90,000 Salaried Taxpayers Involved

The Income Tax Department has identified nearly Rs. 1,070 crore worth of wrongful tax deduction claims made by around 90,000 salaried individuals from public and private sector companies. The discovery, as of December 31, 2024, raised concerns about fraudulent practices among taxpayers.

According to a report by The Economic Times, the growing use of advanced data analytics and information from multiple sources has made it much easier for the Income Tax Department to detect false claims. Salaried employees misused tax deduction provisions exploiting gaps in the verification process.

How Employees Falsely Claimed Deductions?

Employees receive tax deductions from their employers based on documents such as rent receipts, travel tickets, or donation certificates. Some employees submitted forged rent receipts, leave travel allowance (LTA) tickets, or donation certificates to claim deductions.

Employees directly claimed deductions in their income tax returns (ITRs) to get tax refunds or reduce taxable income, bypassing the limited checks conducted by employers. Certain charitable trusts or political parties issued bogus donation receipts in exchange for a cash commission or kickbacks.

HRA Frauds Are Common

One widespread misuse involves the house rent allowance (HRA) exemption. Many taxpayers claim this deduction without actually paying rent to a landlord. To detect such fraud, tenants paying rent over Rs. 1 lakh annually must disclose their landlord's Permanent Account Number (PAN). The Income Tax Department cross-checks whether the landlord reports the rental income in their tax returns. If discrepancies arise, the department may investigate.

Advanced Detection Methods

The Income Tax Department used the following methods:

1. Cross-Referencing PAN Data: This helps detect false rent claims by verifying landlord details and reported income.
2. Tracking Charitable Donations: Trusts are required to submit detailed donation reports (Form 10BD) to the Income Tax Department, listing donor names, PANs, and amounts. Fake donations often come to light during audits or unusual spikes in contributions.
3. Third-Party Data: Data from banks, employers, and other entities are cross-verified against taxpayer filings to spot inconsistencies.

Penalties for Wrongful Claims

Taxpayers caught making false claims face severe consequences:

• Repayment with Interest: Under sections 234B and 234C of the Income Tax Act, taxpayers must repay the tax benefit along with interest.
• Heavy Penalties: Fines under Section 270A range from 50% to 200% of the evaded tax.
• Prosecution for Willful Evasion: Serious cases can lead to prosecution under Section 276C of the Act.

Taxpayers have options to fix mistakes in their filings:

• File a Revised Return: If the mistake is caught before the due date, taxpayers can file a revised return.
• File an Updated Return: Within two years of the relevant assessment year, though this involves paying extra taxes.
• Voluntary Rectification: If taxpayers withdraw wrongful claims and pay the necessary tax before being caught, no penalties are imposed.

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