Fake Tax Deduction Claims Under Scrutiny: The Taxman’s Red Flag
The Income Tax Department has intensified its crackdown on fake tax deduction claims, especially among employees of MNCs, PSUs, and government departments. With improved data analytics and TDS cross-verification, inflated refund claims are now triggering automated scrutiny notices.
If you’ve overstated Section 80C investments, fake HRA rent payments, or claimed bogus deductions — you’re now on the radar.
Why Are Employees Being Targeted?
With salaried income being traceable via Form 16, the Department now focuses on discrepancies in deduction claims.
Red flags include:
- Inflated rent receipts for HRA with no landlord PAN
- Fake tuition fee receipts or LIC policies
- Bogus 80D/80G donations to unverified NGOs
- False interest on housing loan without ownership
According to CBDT and ITBA records, mismatches between AIS/TIS and ITR filings have surged for FY 2022–23 and FY 2023–24 — mostly from salaried professionals.
Government’s Enforcement Tools
Here’s how the system is tightening around fake tax deduction claims:
| Tool/Platform | Function |
|---|---|
| AIS (Annual Info Statement) | Tracks all incomes, investments, TDS, refunds |
| TIS (Taxpayer Info Summary) | Flags inconsistencies before filing |
| Form 26AS | Real-time TDS record verification |
| ITBA & CPC Systems | Auto-picks refund mismatches |
| Rule 21A/22/26 | Enables reassessment, penalties |
CBIC and CBDT are now working in tandem with GSTN and MCA to link PAN-based data trails across income and spending patterns.
Legal Consequences of Bogus Claims
If caught, employees can face:
- Penalty under Section 270A: 50% to 200% of tax under-reported
- Prosecution under Section 276C: For willful evasion
- Disallowance under Section 143(1): Refund blocked or reversed
- Reassessment under Section 147: Up to 10 years if income escaped
Case Law Insight:
In DCIT v. Smt. Kiran Rathod [2020], the ITAT disallowed HRA claims where the landlord’s PAN was fabricated. Refunds were reversed with penalty.
Common Triggers for Scrutiny
Avoid these risky practices:
- Claiming HRA without rent agreement or landlord PAN
- Submitting fake rent receipts from relatives
- Buying policies in others’ names and claiming deduction
- Inflating Section 80C via forged PF or ELSS entries
- Claiming 80D premium without valid health insurance
- Donating to fake NGOs or unverified religious trusts
Expert View: Cross-Verification is the New Normal
“Salaried taxpayers must realise — just because your employer deducts TDS doesn’t mean you’re safe. The refund process is now automated and intelligent. One fake document can invite years of scrutiny,” says CA Mahesh Bafna, a tax consultant in Mumbai.
How to Safely Claim Deductions
To avoid trouble, ensure you:
✔️ Keep original proofs for all claims
✔️ Report correct PANs for HRA and donations
✔️ Match ITR entries with AIS and TIS before filing
✔️ Don’t rely on ‘agents’ promising inflated refunds
✔️ Use government-verified platforms like TRACES and AIS Portal
Efiletax Tip: Use Pre-Filing Validation
At Efiletax, we help you match your ITR entries with real-time AIS and TIS reports — ensuring your claims are legit and risk-free. Book a compliance review before filing.
Explore our ITR filing plans now »
FAQs
Q1. What if I already filed with wrong deduction amounts?
You can revise your return under Section 139(5) before the deadline. File honestly to reduce penalty exposure.
Q2. Will a small fake claim (e.g. ₹5,000 donation) still attract scrutiny?
Yes. Systems are flag-based. Any mismatch, however small, may trigger a CPC notice under Section 143(1)(a).
Q3. Can my employer be held responsible?
No. You alone are responsible for deductions claimed in your ITR. Employer TDS only covers salary; not deductions.
Summary
Fake tax deduction claims by employees of MNCs, PSUs, and govt departments are under IT scrutiny.