Income Tax Refund 2025: In a widespread investigation, the income tax department has uncovered large-scale misuse of deductions by taxpayers. The tax department used data analytics and AI tools to identify
fake or inflated claims such as false TDS filed via refund agents.
According to the Income Tax Department, investigations found that certain intermediaries had set up pan-India agent networks to file income tax returns on a commission basis by inflating or fabricating deductions under the Income Tax Act. The department said a large number of these bogus claims were linked to donations made to Registered Unrecognised Political Parties (RUPPs) and to some charitable institutions.
The authorities identified fraudulent claims under popular sections like HRA (10(13A)), health insurance (80D), political and general donations (80G, 80GGC), and interest on education or home loans (80E, 80EE, 80EEB).
What Are the Consequences Of Claiming Fake Deductions?
Tax experts have warned that fake claims can attract harsh penalties. Under Section 270A, taxpayers may face a 200% penalty on tax due for misreporting, 24% annual interest under Sections 234B and 234C, and even prosecution up to seven years under Section 276C in case of willful evasion.
To counter such practices, the I-T department has mandated more disclosures in the latest ITR forms, including HRA calculations, insurer details under Section 80D, and loan sanction and account information under Sections 80E, 80EE, and 80EEA. Any mismatch could trigger auto-flagging and prompt a tax notice.
What Should You Do?
If you feel you’ve claimed a wrong deduction, you can file ITR-U. It allows you to fix errors, add missed income and withdraw false claims.
Taxpayers are advised to avoid third-party refund agents and instead file their returns honestly, cross-checking details with their AIS/Form 26AS. The ITR-U facility remains available for up to five years to help rectify any errors or voluntarily withdraw incorrect claims.
