The Income Tax Department has launched a major crackdown on salaried individuals, including employees of multinational companies (MNCs), public sector undertakings (PSUs) and government departments, who have allegedly misused deduction provisions under the Income Tax Act, 1961 to claim fraudulent tax refunds.
According to a statement issued by the Finance Ministry on Monday, multiple cases have been unearthed where taxpayers submitted inflated or fictitious deduction claims, often in collusion with unscrupulous intermediaries and return preparers.
Widespread Misuse of Deductions
The investigation has revealed rampant abuse of several provisions, including deductions under:
- Section 10(14) - Special allowances
- Section 80GG - Rent paid without HRA
- Section 80E - Interest on education loans
- Section 80D - Health insurance premiums
- Section 80EE / 80EEA - Interest on home loan for first-time buyers
- Section 80G / 80GGA - Donations
- Exemptions under Section 10(13A) - House Rent Allowance (HRA)
Officials report that employees from well-regarded institutions and companies were found claiming deductions without actual eligibility, pointing to a systemic issue involving both individual intent and organised facilitation.
Organised Rackets of Tax Intermediaries Uncovered
The probe further uncovered organised rackets of ITR preparers and tax consultants filing returns with fictitious deductions, sometimes even submitting fabricated TDS returns to trigger excessive refund claims. The scale and sophistication of these fraudulent filings have alarmed tax authorities.
Nationwide Verification Drive Underway
On July 14, 2025, the department initiated a large-scale verification drive across various states including Maharashtra, Tamil Nadu, Delhi, Gujarat, Punjab, and Karnataka. Using AI-driven analytics and third-party data sources, investigators have systematically identified errant taxpayers and facilitators.
Refunds Withheld, Legal Action Initiated
As part of this crackdown, the Income Tax Department has already:
- Withheld suspicious refund amounts
- Initiated scrutiny of flagged returns
- Started penalty and prosecution proceedings in confirmed cases
The Central Board of Direct Taxes (CBDT) has reiterated its stance on balancing taxpayer trust with stringent action against willful defaulters.
Crackdown Likely to Intensify
Officials confirmed that this is just the beginning. The department is prepared to expand its efforts, targeting not just individual taxpayers but also the networks of intermediaries involved in orchestrating the fraud.
The move underscores the government's commitment to preserving the integrity of the tax system and ensuring that legitimate taxpayers are not burdened by fraudulent activity in the ecosystem.
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