Fake tax deductions: What taxpayers must know as I-T Dept launches raids

Taxpayers flagged for bogus political donations risk scrutiny and penalties; experts advise keeping records and consulting professionals despite new Al tools.

The Income Tax (I-T) Department has launched nationwide raids at over 200 locations to crack down on fraudulent tax deduction claims, targeting individuals and intermediaries allegedly helping taxpayers inflate deductions under the old tax regime, including bogus political donations, tuition fees, and medical expenses, news agency ANI reported on Monday.

 

“The Income Tax Department is conducting raids in connection with false deductions of political donations. This action comes after the Department found several bogus bills claimed by several intermediaries under 80GGC,” ANI posted on its X handle.  Calculate Income Tax: Income Tax Calculator Tool

 

“Searches were also underway in connection with bogus medical expenses and tuition fees.  Raids were underway on more than 200 locations,” ANI reported, quoting sources.

 

Misuse of paperless filing flagged

Authorities pointed out that the shift to paperless filing of income tax returns has made it easier for some taxpayers to inflate deductions, assuming they would escape scrutiny. However, recent initiatives such as the I-T Department’s “NUDGE” campaign flagged suspicious claims and encouraged taxpayers to revise their returns before facing penalties.

Why political donations are under scrutiny

Tax deductions for political donations, allowed under Section 80GGC of the Income Tax Act, are a key focus. These deductions enable individuals to reduce their taxable income if contributions are made to registered political parties or electoral trusts.

 

“The Income Tax Department flags political donations to ensure transparency and prevent misuse of tax benefits,” said SR Patnaik, partner (head – taxation), Cyril Amarchand Mangaldas. “Taxpayers are required to submit valid proofs of payments and receipts to substantiate donations. In case of unsubstantiated claims, it may lead to further scrutiny and penalties.”

Should you rely on AI tools?

The department’s recently launched TaxAssist AI tool has also been in focus, but experts caution against over-relying on it.

 

“The tool is new and its performance hasn’t been tested extensively. Taxpayers may still need to consult a professional, especially in complex cases.” said Patnaik

 

What should taxpayers do?

Experts suggest to- 

 

• Maintain proper records: Bank statements, transaction proofs, and receipts are critical. 
• Avoid cash contributions: Only digital or banking channels qualify for deductions. 
• Be cautious of intermediaries: Don’t engage agents who offer to ‘arrange’ deductions. 
• Respond to notices promptly: Use TaxAssist for guidance, but seek professional advice if needed.

 

Tax experts advise taxpayers to file honest returns and avoid taking shortcuts that could lead to prosecution.