The Income Tax department in Hyderabad has uncovered a massive tax fraud scheme involving IT professionals who falsely claimed tax refunds by making fraudulent donations to registered unrecognised political parties (RUPPs). The scam, valued at ₹110 crore, exploited Section 80GGC of the Income Tax Act, which provides tax deductions for genuine political contributions.
Modus Operandi of the Fraud
According to reports, IT professionals from 36 companies claimed to have donated large sums to political parties, but these transactions were merely on paper. In some cases, the donations were made via cheque or bank transfer, only for the money to be returned in cash after deducting a commission. A notable instance involved an IT employee earning ₹46 lakh annually, who fraudulently claimed to have donated ₹45 lakh to a political party.
How the Scam Was Busted
Unlike previous tax frauds involving fake house rent allowance (HRA), education loans, and home loan interest, this case exposed a new method of tax evasion. The breakthrough came when officials found that multiple IT employees were using a common email address to file their fraudulent claims. These bogus donations were then reported as tax-deductible contributions under Section 80GGC.
The RUPPs linked to the scam were traced to Gujarat and Telangana. Some of these political entities had never contested an election and failed to submit contribution reports to the Election Commission of India (ECI), raising further suspicion.
Crackdown and Consequences
The I-T department is now scrutinising tax returns from FY 2021-22 to 2023-24 and instructing taxpayers to withdraw any incorrect claims. Notices are being sent to employees questioning the validity of their refund claims, and those found guilty must file an updated return (ITR-U) by March 31, 2025, to avoid a 200% penalty.
Major tech companies have responded by halting deductions under Section 80GGC and opting for tax deducted at source (TDS) instead. Despite this, employees continue to bypass the system and claim refunds independently. One large IT firm saw 430 employees claim deductions totaling ₹17.8 crore, with an average refund of ₹4.2 lakh per person. However, the company itself was not involved in the fraud, as the employees acted independently.
Preventive Measures and Awareness Campaigns
To curb future fraud, the I-T department has launched awareness sessions at major IT and financial firms, cautioning employees against exploiting Section 80GGC. These sessions, conducted in Hyderabad from January 28 to 30, provided guidance on how to ensure legitimate tax filings and avoid severe penalties.
As the investigation continues, the crackdown on fraudulent tax claims signals stricter compliance measures and heightened vigilance by the I-T department to prevent tax evasion through political donation loopholes.
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