The Income Tax (I-T) department in Hyderabad has uncovered a tax fraud case involving several IT professionals who falsely claimed tax refunds by making donations to registered unrecognised political parties (RUPPs), exploiting Section 80GGC of the Income Tax Act, which allows tax deductions for political contributions.
The scam, worth ₹110 crore, involved professionals from 36 companies who pretended to donate large sums of money to political parties, but never actually made these donations. In some cases, the donations were made via cheque or bank transfer, only for the money to be returned in cash after a commission was deducted, as per a report by TOI.
A case involved an IT employee earning ₹46 lakh annually, who claimed to have donated ₹45 lakh to a political party.
This new fraud scheme is a departure from previous investigations that exposed fraudulent claims related to house rent allowance (HRA), education loans, and home loan interest. In 2023, the focus shifted to government employees in Telangana and Andhra Pradesh, but the latest probe now targets private sector employees.
A breakthrough in the investigation occurred when officials discovered that multiple IT employees were using a common email address to file their fraudulent claims. These false donations were subsequently reported as tax-deductible contributions under Section 80GGC of the Income Tax Act, which allows deductions for political party donations.
The RUPPs involved in the scam were traced to states such as Gujarat and Telangana. Some of the political parties linked to these donations had never contested an election and had not submitted their contribution reports to the Election Commission of India (ECI).
The I-T department is now scrutinising tax returns from fiscal years 2021-22 to 2023-24 and instructing taxpayers to withdraw any incorrect claims. Employees will be sent notices questioning the validity of their refund claims, and the department is urging them to reassess their filings. Those found guilty of making false claims will be required to file an updated return (ITR-U) by 31st March 2025 to avoid a 200% penalty.
Several major tech companies have already stopped processing deductions under Section 80GGC and are now opting for tax deducted at source (TDS). Despite this, employees are still managing to bypass the system and claim refunds independently. One large IT company saw 430 employees claim deductions totalling ₹17.8 crore, with an average refund of ₹4.2 lakh per person. The company itself was not involved, as the employees acted independently.
To prevent further fraud, the I-T department has started conducting awareness sessions at major IT and financial firms, urging employees not to exploit Section 80GGC. These outreach programmes, held in Hyderabad from 28th to 30th January, provided guidance on how to avoid making fraudulent claims in tax returns.
