The Income Tax Department has uncovered a large-scale scam involving fraudulent refund claims by Indian taxpayers who falsely declared themselves as foreign citizens during IT return filing. The scam exploited a loophole in the online filing system that allowed Indian citizens to claim tax exemptions under Section 10(6) of the Income Tax Act, which is meant exclusively for foreign nationals and diplomatic staff working in India.
The fraud came to light following a raid in Gondia, Maharashtra, where a local tax preparer was found assisting clients in falsely claiming foreigner status to secure tax refunds. The discovery led to a broader investigation into over 2,000 income tax returns across the Nagpur Chief Commissionerate jurisdiction, which includes the Vidarbha and Marathwada regions.
According to sources, some taxpayers also exploited the "any other" option in the exemption category dropdown menu to claim unjustified deductions. These fraudulent filings have triggered a nationwide alert, and the Central Processing Centre (CPC) of the Income Tax Department has been urged to implement tighter system controls to prevent Indian citizens from misusing exemptions meant for foreign entities.
The Income Tax Act's Section 10(6) provides several exemptions for earnings of foreign nationals, including diplomatic personnel and those working in international agencies. The scam involved Indian citizens manually selecting these exemptions during e-filing, bypassing system checks.
In response, tax authorities are now recommending firewalling the return processing system, so that Indian citizens selecting the foreign national option are automatically flagged and prevented from proceeding. The IT Department is working on technological upgrades to ensure that similar frauds are not repeated in the upcoming assessment cycles.
The exact amount of revenue loss due to the scam is still being investigated.
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