Income Tax Department cracks down on fraudulent claims of deductions, conducts raids at 150 locations across states

The Income Tax Department on Monday, July 14, conducted a large-scale verification operation across as many as 150 locations in the country, targeting individuals and entities facilitating fraudulent claims of deductions and exemptions in Income Tax Returns (ITRs), the Central Board of Direct Taxes stated in a statement.

Following the analysis, the IT department undertook searches and surveys at multiple offices and houses in several Indian states.

The large-scale crackdown (verification) follows the detailed analysis of financial data received from third-party sources, ground-level intelligence and advanced artificial intelligence tools.

“This large-scale verification follows detailed analysis of misuse of beneficial provisions like deductions u/s 10(13A), 80GGC, 80E, 80D, 80EE, 80EEB, 80G, 80GGA and 80DDB, often in collusion with professional intermediaries. Advanced AI tools and third-party data are being used to identify suspicious patterns,” the Income Tax Department said in a social media post on X on Monday.

These findings were further substantiated by recent search operations conducted in Maharashtra, Tamil Nadu, Delhi, Gujarat, Punjab and Madhya Pradesh, where evidence of fraudulent claims being used by various groups and entities was found, the CBDT said in the statement.

"Investigations have uncovered organised rackets operated by certain ITR preparers and intermediaries, who have been filing returns claiming fictitious deductions and exemptions. These fraudulent filings involve the abuse of beneficial provisions, with some even submitting false TDS (tax deducted at source) returns to claim excessive refunds," it said.

The analysis, the Board said, reveals "rampant misuse" of deductions available under sections 10(13A) (exemption under house rent allowance), 80GGC (contribution made to political parties), 80E (deduction for interest on education loan), 80D (deductions related to medical insurance), 80EE (deduction for interest on home loan), 80EEB (deduction for electric vehicle), 80G and 80GGA (contributions made to charitable or research organisations), and 80DDB (deduction for treatment of critical illness like cancer, etc.).

"Exemptions have been claimed without valid justification. Employees of MNCs, PSUs, government bodies, academic institutions, and entrepreneurs are among those implicated," the statement read.

Taxpayers are often lured into these fraudulent schemes with promises of inflated refunds in return for a commission, the CBDT said.

The IT department follows the principle of 'Trust Taxpayers First', and it has always focused on voluntary compliance, it added.

Over the last year, the department has carried out extensive outreach efforts, including SMS and email advisories, asking suspected taxpayers to file revised returns and pay correct tax.

"As a result, approximately 40,000 taxpayers have updated their returns in the last four months, voluntarily withdrawing false claims amounting to ₹1,045 crore. However, many remain non-compliant, possibly under the influence of the masterminds behind these evasion rackets," CBDT said in the statement.

It further said that despite a fully online tax administration system, ineffective communication remains a major hurdle in assisting taxpayers, as it was noted that such fraudulent ITR preparers often create temporary email IDs just to file bulk returns and later abandon them. This results in official notices going unread/ignored.

The IT department is now planning to take strict action against continued fraudulent claims, including penalties and prosecution wherever applicable, the Board said.

"The ongoing verification exercise across 150 premises is expected to yield crucial evidence, including digital records, that will aid in dismantling the networks behind these schemes and ensure accountability under the law," it added.

The CBDT advised taxpayers to file correct income and communication details, and to refrain from being influenced by advice from unauthorised agents or intermediaries promising high refunds.