Income Tax Department cracks down on fake ITR refunds

• 15 Jul 2025
• 391 Views

On 14 July 2025, the Income Tax Department (ITD) embarked on a large-scale verification operation across multiple locations in India to target individuals and entities that facilitate fraudulent claims of deductions and exemptions in Income Tax Returns (ITRs). The ITD took this major step after a detailed analysis of misuse of tax advantages under Income Tax Act 1961, often in collaboration with professional intermediaries. 

The department’s investigations discovered organized rackets operated by specific ITR preparers and third parties, who were involved in filing returns with fictitious deduction and exemption claims. Abuse of beneficial provisions was involved in such fraudulent filings. Some even filed false TDS returns for the purpose of claiming excessive refunds.

The Income Tax Department took the help of financial data received from third party sources, advanced AI tools and ground level intelligence to identify suspicious patterns that certain individuals and entities followed. 

Recent search and seizure operations carried out in Maharashtra, Delhi, Gujarat, Punjab, Madhya Pradesh and Tamil Nadu further substantiated these findings, where evidence of fraudulent claims was discovered to have been used by various entities as well as groups. 

The department’s analysis reflected deductions’ misuse under the Act’s sections, namely, 10(13A), 80GGC, 80E, 80D, 80EE, 80EEB, 80G, 80GGA and 80DDB. No valid justification was provided to claim exemptions. Individuals who have been exposed include employees working for MNCs, PSUs, entrepreneurs, academic institutions and government bodies. 

Many taxpayers in India are fooled into fraudulent schemes with promises of inflated refunds in exchange for a commission. Even though the tax administration is entirely e-enabled, ineffective communication still remains a major problem in facilitating taxpayers.

The ITR preparers who conduct frauds often create temporary email IDs just for the specific purpose of filing bulk returns. These email IDs are later abandoned. Therefore, official notices sent on them often go unread. 

The Income Tax Department, in line with ‘Trust Taxpayers First’ guiding principle, has emphasized voluntary compliance. It has led extensive outreach efforts over the past one year, including issuing advisories via SMS and email and urging suspected taxpayers for ITR revision so they can pay correct tax. The ITD has also carried out physical outreach programs on campus and also outside the campus. 

As a result of the department’s efforts, approx. 40,000 taxpayers updated their ITRs in the past 4 months voluntarily and withdrew false claims that totalled to Rs. 1,045 crore. However, even now, many taxpayers stay non-compliant, possibly due to the influence of masterminds leading evasion rackets.

For continued fraudulent claims, the IT department will take strict actions, including penalties and prosecution. The current verification exercise across 150 premises is anticipated to obtain crucial evidence that will help to dismantle networks behind fraud schemes and ensure accountability. Further investigations are in progress. 

Taxpaying individuals and entities are advised to file their particulars of their ITRs correctly. They should not be influenced by advice of unauthorized agents or third parties that promise undue refunds.

Source: Press Information Bureau (PIB)