Over the past few months, thousands of salaried employees across India received something they weren’t expecting in their inbox - an Income Tax scrutiny notice.
The subject? False deduction claims.
Nearly 1 lakh employees reported deductions in their ITRs that never existed to lower their tax liability. Some withdrew their claims once flagged, while others are now facing scrutiny proceedings.
Here’s a list of the most common false deductions flagged by the ITD.
1. Investment claims under Section 80C
Section 80C is familiar to most salaried taxpayers. It covers LIC, PPF, NPS, ELSS, and other popular investments. But many claimed deductions here without actually making these investments.
Some even went beyond that, adding deductions for health insurance (80D) or education loans (80E) without any basis.
These cases are easy to identify because employers already report salary and deduction details in Form 16. So when taxpayers add extra deductions in their ITR that didn’t match with Form 16 and AIS, the gaps become obvious.
2. Donation claims under Section 80GGC
Political donations qualify for up to 100% deduction under Section 80GGC. For some, this was seen like a convenient way to reduce taxable income, by claiming donations that were never actually given.
Since political party donations are publicly recorded, any name missing from the donor lists, is immediately flagged as a false claim.
3. HRA claims under Section 10(13A)
House rent allowance (HRA) is another common deduction for salaried employees. But some try to misuse it by submitting fake or overstated rent receipts to cut tax.
Here too, if HRA details aren’t reported in Form 16 or when the amount claimed is suspiciously high, the ITD’s systems flag it for further scrutiny.
4. Home loan interest claims under Section 24(b)
Section 24(b) allows taxpayers to claim a deduction on the interest paid towards a home loan, making it a valuable benefit for homebuyers. But some misused it by showing claims without actually having a valid loan, or by failing to maintain proper loan documents.
Loan details are reported directly by banks and lenders. When an ITR claim didn’t match these records, the false claim is quickly flagged.
How is the ITD different today?
In the past, false deduction claims sometimes slipped through. Today, there’s no person sitting and looking at your records, there are systems in place, much more capable and efficient.
Every financial transaction now leaves a digital trail. From bank records to lender data and stock market settlements, all of these are reported to the ITD. And then with the increasing use of tech and AI, almost every suspicious claim and fraudulent activity is being detected.
What should you do?
- Report all deductions to HR so they’re correctly reflected in Form 16
- Keep proof for every deduction you claim
- Cross-check your AIS before filing
- If you’ve made an error, file a revised return before the due date
Happy tax filing!