Income Tax Department detects wrongful tax relief and fake deduction claims through data analytics

The Income Tax Department has detected several cases of wrongful tax reliefs and claims of non-genuine deduction in the last five years, according to the Finance Ministry.

Such cases came to light through data analytics and verification exercises, and were further corroborated through searches and surveys carried out against entities, professional intermediaries and other persons suspected of facilitating such claims, Union Minister of State for Finance, Pankaj Chaudhary, said in a written reply to an unstarred question in the Lok Sabha on August 3, 2026.

He further said that these actions resulted in the recovery of evidence regarding tax evasion and other violations under the provisions of the Income-tax Act, 1961. "Based on the evidence gathered, appropriate action has been taken in accordance with the applicable provisions of Income-tax Act," Chaudhary said.

How is CBDT detecting tax frauds?

The CBDT has also formulated risk rules to flag risk of tax evasion, by undertaking systematic and identity blind analysis of data from various sources, including income tax returns (ITRs), tax audit reports, third-party filings including other law-enforcement agencies wherein returns and transactions exhibiting characteristics indicative of potential tax evasion are identified.

"The process of formulating risk rules is dynamic wherein such rules are continually calibrated and refined," Chaudhary said.

NUDGE campaign impact

To detect tax evasions, the CBDT has also undertaken the NUDGE (Non-intrusive Usage of Data to Guide and Enable) campaigns. These are "extensive technology-driven measures that leverage data analytics, legislative enablement, behavioural insights and digital communication platforms for improved tax collection efficiency by shifting the focus from post-facto enforcement to preventive, technology enabled compliance in a non-intrusive manner," Chaudhary said.

Under these campaigns, the tax department sends communications to select taxpayers after due risk analysis to review and revise/update their past ITRs.

"The taxpayers are selected on the basis of advanced risk analysis identifying incorrect or non-reporting of assets or income, or excess claims of deductions or exemptions in their ITRs," Chaudhary said.

"These campaigns were also backed by nationwide outreach programmes engaging employers to sensitise taxpayers for voluntary correction of discrepancies by filing revised return/belated return/ updated return," he added.

As a result of these campaigns, around 1.25 crore updated/revised ITRs were filed, leading to a collection of Rs 9493 additional tax.

Chaudhary also said that CBDT proactively shares information with other law enforcement agencies (LEAs) through Regional Economic Intelligence Councils (REICs) platform and Nodal Officer mechanism. In addition, exchange of information also takes place between CBDT and other LEAs, like Central Board of Indirect Taxes and Customs (CBIC), whereby data relevant for the Department/Agency/Organisation concerned is shared automatically, on request and suo motu basis.

Fraudsters identified

"Action taken includes NUDGE campaigns, e-verification, search & seizure and survey operations, assessments/reassessments, levy of penalty and prosecution. In addition, appropriate information has been shared against the tax professionals with the relevant regulatory/enforcement organizations including the Institute of Chartered Accountants of India (ICAI)," he added.