Ignorance is not a defence and taxpayers have to give proof to justify claims, say experts
The Income Tax Department has searched 200 places nationwide to clamp down on bogus tax deductions, news agency ANI reported on Monday.
The searches were at individuals and intermediaries suspected of inflating claims under key sections of the Income Tax Act, including political donations (Section 80GGC), tuition fees, and medical expenses. ANI quoted unnamed sources as saying that the crackdown follows the detection of fake bills and misuse of exemptions, with several intermediaries allegedly facilitating fraudulent claims.
Why are these deductions under scrutiny
“These categories are vulnerable to misuse as they rely heavily on self-declared documents and are relatively easier to inflate or fabricate because they are not verified at the time of filing,” Niyati Shah, chartered accountant & vertical head – personal tax at 1 Finance, told ‘Business Standard’.
“Political donation receipts may be issued by lesser-known entities, tuition fee payments might be claimed even for non-eligible institutions, and inflated or unrelated medical bills may be shown under critical illness deductions,” she said.
Political donations accounted for over Rs 10,000 crore in tax claims in a single year, with a tenfold surge between FY17 and FY22, said Shaily Gupta, partner at Khaitan & Co. “More than 650,000 taxpayers are currently under scrutiny for suspicious deductions, including 400-plus tech professionals linked to a Rs 110 crore refund racket,” she said.
Political donations are flagged due to concerns about “tax evasion, money laundering, and misuse of tax exemption provisions,” particularly where contributions seem inconsistent with the donor’s income or are made to shell entities, noted Ritika Nayyar, partner at Singhania & Co.
Bogus claims
“If claims are found to be bogus, deductions are disallowed, and the taxpayer’s income is recomputed,” Shah said. “Penalties under Section 270A for misreporting income can reach up to 200 per cent of the evaded tax, and in severe cases, prosecution under Section 277 may follow.”
Even if taxpayers claim they were misled by intermediaries, “ignorance is not a defence,” Gupta cautioned.
Experts say maintaining records will help if their tax claims are scrutinised:
-For political donations, retain digital payment proof and valid receipts from registered parties.
-For tuition fees, preserve official receipts from recognised institutions.
-For medical expenses, maintain insurance details, hospital bills, and prescriptions.
“Cross-verify that claims align with Form 26AS and AIS, and avoid cash transactions which are ineligible for deductions,” Shah said.
Can AI tools like TaxAssist help?
While the tax department’s AI-driven TaxAssist tool can guide taxpayers and flag anomalies, it is not a substitute for professional advice. “AI may simplify compliance for basic cases but cannot replace expert judgment in complex or high-value filings,” Nayyar said.
Taxpayers are urged to file honest returns and avoid shortcuts that may trigger scrutiny. “Compliant documentation is the best protection against adverse tax action,” Gupta stressed.
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