Income Tax Department Cracks Down on Bogus Deductions and Exemptions: ₹1,045 Crore Withdrawn After Warnings

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Large-Scale Operation Against Tax Fraud Unveiled

The Income Tax Department has launched a massive verification drive across multiple states, targeting widespread abuse of deductions and exemptions in Income Tax Returns (ITRs). This action follows a detailed forensic analysis revealing systemic misuse of provisions under the Income-tax Act, 1961, in collusion with professional intermediaries and ITR preparers.

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Organised Rackets Behind Fictitious Claims

According to a statement from the Central Board of Direct Taxes (CBDT), investigations uncovered organised rackets run by certain ITR intermediaries who were systematically filing returns with fictitious claims. These schemes often involved fake deductions and exemptions and even false Tax Deducted at Source (TDS) filings, in a bid to inflate refunds.

Many of these returns were facilitated through temporary email addresses, which were later abandoned—causing taxpayers to miss crucial communication from the tax department.

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Key Sections Abused

CBDT flagged the rampant misuse of several deduction sections under the Income-tax Act, including:

• Section 10(13A) – House Rent Allowance

• Section 80GGC – Contributions to political parties

• Section 80E – Education loan interest

• Section 80D – Medical insurance

• Section 80EE & 80EEB – Housing loan and electric vehicle interest

• Section 80G, 80GGA, and 80DDB – Donations, rural development, and medical expenses

The Department has reported that even employees of PSUs, MNCs, academic institutions, and government departments were lured into these schemes with the promise of inflated refunds in exchange for a commission.

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Technology and Intelligence in Action

The crackdown is based on a multi-layered investigation strategy using:

• Third-party financial data

• Ground-level intelligence

• AI-based anomaly detection tools

This data-led verification has already led to search and seizure operations in states including Maharashtra, Tamil Nadu, Delhi, Gujarat, Punjab, and Madhya Pradesh, where digital evidence of fraudulent activity was recovered.

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Voluntary Compliance Gains Momentum

Despite the scams, the department's outreach initiatives have seen positive voluntary response:

• Over 40,000 taxpayers revised their returns in the past four months.

• False deduction claims amounting to over ₹1,045 crore were withdrawn.

• Taxpayers responded to SMS, email, and physical advisories sent by the department.

However, a significant number of individuals remain non-compliant—possibly under the influence of the intermediaries who facilitated the original fraud.

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Stern Action Ahead: Penalties and Prosecution

The Department warned that stern action is imminent. Penalties and criminal prosecutions will be pursued against those continuing to file fraudulent claims. The ongoing verification operation—covering over 150 premises across the country—is expected to yield crucial digital evidence for identifying and dismantling these evasion networks.

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Advisory to Taxpayers

The CBDT has reiterated the following key advisories:

• Disclose income honestly and completely.

• Avoid intermediaries promising undue refunds.

• Use correct communication details to avoid missing legal notices.

• Revise ITRs voluntarily if incorrect deductions were claimed.

This exercise reinforces the Department’s mission under the 'Trust Taxpayers First' framework while simultaneously upholding the integrity of the tax system through targeted enforcement.

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Conclusion

This latest enforcement drive signals a new era in India's tax compliance regime—where digital surveillance meets regulatory force. With over ₹1,000 crore already retracted, and more penalties on the horizon, taxpayers must stay alert, stay compliant, and stay away from fraudulent agents promising easy gains.

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