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Claiming a fake deduction in ITR filing may attract a penalty up to 200% and 7-year jail. Taxpayers should file ITR-U if they have claimed wrong deduction.
Fake claim deduction may attract a penalty upto 200% and 7 year jail.
ITR Filing 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.
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).
Even 40,000 taxpayers used ITR-U (which we have given detailed information below) in last 4 months and over Rs 1,045 crore of wrongful deductions were reversed after being flagged by the IT department.
Amid the ongoing tax season, it has become important to understand the consequences of fake claims to get the tax benefits and reduce the liability.
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.
Income-tax is raiding individuals for deduction claimsThey’re cracking down on fake HRA, donation deductions, etc. using AI
Over 40,000 taxpayers reversed fake deduction claims worth ₹1,045 crores🤯
Claimed fake deductions? Here’s what income tax did and can do to you🧵👇
— TaxBuddy.com (@TaxBuddy1) July 15, 2025
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.
Varun Yadav is a Sub Editor at News18 Business Digital. He writes articles on markets, personal finance, technology, and more. He completed his post-graduation diploma in English Journalism from the Indian Inst…Read More
Varun Yadav is a Sub Editor at News18 Business Digital. He writes articles on markets, personal finance, technology, and more. He completed his post-graduation diploma in English Journalism from the Indian Inst…Read More
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