Income Tax crackdown on bogus refund claims: What you must know
With the filing deadline for AY 2025–26 fast approaching, the Income Tax Department has intensified its crackdown on bogus refund claims. From AI-driven scrutiny to real-time TDS validation, the system is now aggressively flagging suspicious refund filings — especially those with fabricated deductions, inflated expenses, or fake TDS.
If you’re planning to file your return, it’s crucial to understand what constitutes a false claim and how to avoid triggering an audit or penalty.
What are bogus refund claims?
Bogus refund claims typically involve:
- Fake TDS credits (manipulated Form 26AS or AIS data)
- Inflated deductions under Sections 80C, 80D, 80G, etc.
- Exaggerated business losses or manipulated capital gains
- Fictitious home loan interest under Section 24(b)
- Misreporting foreign income, salary splits, or HRA
- Using multiple PANs or fraudulent bank accounts to receive refunds
Legal action under Income Tax Act
The crackdown is not just about warnings — several provisions empower the department to act:
| Offence | Section | Consequence |
|---|---|---|
| False refund claim | 271J, 270A | Penalty up to 200% of tax sought to be evaded |
| Furnishing false information | 277 | Imprisonment up to 7 years |
| Misreporting income | 270A(9) | 50% to 200% penalty on under-reported income |
| Claiming TDS not actually deducted | 276C | Prosecution for tax evasion |
The 2024 Budget also empowered the department to cross-verify refund claims with TDS returns, GST filings, and AIS/TIS data.
How does the system detect fraud?
The ITD uses a combination of:
- Artificial Intelligence (AI) & ML algorithms to detect patterns
- Real-time comparison of Form 26AS, AIS, and ITR
- Validation of high-value transactions from banks, mutual funds, registrars
- Mismatch alerts between claimed TDS and actual deduction reported by deductor
- Use of risk parameters and red flags based on past fraudulent trends
Expert tip: Avoid these common traps
Even small errors can now trigger scrutiny. Here’s what tax consultants recommend:
✅ Match your ITR claims exactly with Form 26AS and AIS/TIS
✅ Upload proof for large deductions or donations ✅ Don’t blindly trust unauthorized tax filers or refund agents promising “maximum refund”
“With new-gen tech surveillance, claiming refund without basis is like handing yourself to the department on a platter.” — Efiletax Expert View
How to claim refund safely and legally?
Here’s a clean process to follow:
Download Form 26AS and AIS from the income tax portal
Cross-verify every TDS, salary, capital gain, interest credit
Ensure your deductions are backed by bank payments/receipts
File using a trusted platform like Efiletax
Keep soft copies of proofs handy for possible scrutiny
Who’s under the radar?
High-risk profiles include:
- Freelancers with sudden spikes in refund claims
- citizens filing through third-party agents
- Employees with multiple Form 16s and salary splits
- Those claiming refunds exceeding ₹2 lakh without matching TDS
- First-time filers claiming large 80C–80G deductions
Recent case examples
- Bangalore CA Firm Case (2024): ₹9 crore refund scam using fake TDS credits — prosecution initiated
- Mumbai Tech Employee: Claimed ₹1.4 lakh refund by inflating 80G donations — refund denied, penalty levied
- Ahmedabad agent ring: Over 1,200 fake refund ITRs filed using mismatched PAN-TDS — all refunds blocked
FAQs on bogus refund claims
Q1. Can I revise my return if I made an error in refund claim?
Yes. You can revise before the due date u/s 139(5). But once flagged, the return may still go into scrutiny.
Q2. Will I get refund if TDS is deducted but not updated in Form 26AS?
No. Refund is processed only after reconciliation with 26AS/AIS. Ask your deductor to revise TDS return.
Q3. What happens if refund is claimed mistakenly and already processed?
You may have to return the excess refund with interest, and face penalty under Section 234D or 270A.
Final word: Don’t risk it
A refund is not a bonus — it’s a return of excess tax paid. Don’t treat it like a freebie. Any mismatch, inflation, or fake claim can cost you more than you gain.
File your ITR safely with Efiletax
Want to claim your refund the right way?
Our platform ensures 100% data match with AIS, TIS, and Form 26AS, so you never face notices or delays.
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Summary
Income Tax Department is cracking down on bogus refund claims using AI and data matching.Avoid notices and penalties by filing accurately with Efiletax.