New ITR Rules: ₹5,000 to 200% Penalty on False Deductions
Claiming fake deductions in your ITR? The new income tax rules can now land you with a penalty of up to 200% of the tax evaded.
This major change is part of the government’s crackdown on bogus claims under Section 80C, HRA, home loan interest, and other exemptions or deductions.
Here’s what every taxpayer needs to know before filing ITR for AY 2025–26.
What Changed in the New ITR Rules?
The Central Board of Direct Taxes (CBDT) has updated ITR forms and is actively flagging mismatches and bogus claims through:
- Pre-filled data from AIS (Annual Information Statement)
- Auto-validation against Form 26AS and employer data
- Tighter scrutiny based on Section 270A of the Income Tax Act
📌 Penalty:
- ₹5,000 under Section 270A(7) for under-reporting
- Up to 200% of tax evaded if the claim is deemed “misreported”
What is Considered a False Deduction Claim?
The following are common red flags that may invite penalty:
| Bogus Claim | Example |
|---|---|
| Fake HRA bills | Claiming HRA without paying actual rent or giving fake rent receipts |
| Fake 80C entries | Declaring investments in LIC, PPF, ELSS without proof |
| False 80D claims | Fabricated health insurance premium or medical bills |
| Bogus loan interest | Showing home loan interest without owning the house or loan |
Expert Tip: Keep all documents for at least 6 years. CBDT can reopen past cases if discrepancy is found.
Section 270A: What You Must Know
Under Section 270A, two kinds of penalties apply:
| Type | Penalty % | When It Applies |
|---|---|---|
| Under-reporting | 50% of tax | Miscalculating income or deductions |
| Misreporting | 200% of tax | Falsifying facts, fake documents |
Some examples of misreporting include:
- Fabricated donation receipts
- Claiming exemptions under wrong sections
- Hiding second salary income from freelance or gig work
Key Notification: CBDT has notified updated ITR Forms via Notification No. 40/2025 dated 29.04.2025, with enhanced compliance fields to track such issues.
How to Avoid These Penalties in Your ITR
✅ Use authentic documents
✅ Cross-check AIS and Form 26AS before filing
✅ Declare gig income, rent income, and capital gains accurately
✅ Reconcile TDS claims with employer-supplied Form 16
✅ Avoid last-minute errors—use verified platforms like Efiletax
Efiletax Advice: New Regime = No Deductions
Many salaried taxpayers claim deductions that are not allowed under the new tax regime (Section 115BAC).
If you’ve opted for the default new regime, you cannot claim 80C, 80D, or HRA deductions.
📌 Always confirm your regime status before applying any deductions.
Summary
New ITR rules now allow penalty up to 200% for false deduction claims like fake rent or bogus 80C entries. Verify data from AIS and 26AS before filing your return. Choose the correct tax regime and maintain proof to avoid heavy fines.
FAQs
Q1. Can I claim HRA if I live with parents?
Yes, but only if you pay rent through bank transfer and they declare it as income. Keep rent receipts and rental agreement.
Q2. What if I made an honest mistake in my ITR?
If it’s a genuine error and not misreporting, you may only face a ₹5,000 penalty or be allowed to revise the return under Section 139(5).
Q3. Is tax deducted on fake deduction claim?
Yes. Misreporting can attract penalty + interest + reopening of your case for up to 10 years under Section 147.
Final Words
Filing an ITR isn’t just a formality anymore—it’s a digital audit trail. With real-time data matching and automated red flags, any false deduction can cost you thousands or even lakhs in penalty.