The Income Tax Department has started cracking down on certain chartered accountants (CAs) and related professional intermediaries who have been found involved in helping taxpayers claim fake tax deductions and exemptions. Reports suggest that income tax authorities have continued to conduct raids on multiple locations in the country related to income tax return (ITR) preparers and entities.
The Finance Ministry issued a circular on July 14, informing about strict actions initiated against fraudulent tax activities by income taxpayers and certain tax professionals.
The I-T department said that it targeted individuals and entities “facilitating fraudulent claims of deductions and exemptions” in ITRs. The department’s investigations have so far found that thousands of taxpayers colluded with professional intermediaries as the latter promised them high refunds and charged huge commissions in return.
How is this tax fraud done?
“Investigations have uncovered organised rackets operated by certain ITR preparers and intermediaries, who have been filing returns claiming fictitious deductions and exemptions. These fraudulent filings involve the abuse of beneficial provisions, with some even submitting false TDS returns to claim excessive refunds,” the government said.
Tax professionals and agents assure taxpayers that they can get them higher tax refunds. For this, they show fake deductions and exemptions in ITR – such as HRA, 80C, 80D, 80G, home loan interest etc.
Taxpayers are explained that if the Income Tax Department does not inquire, they will get the full refund and a certain percentage will have to be given to the agent as commission.
In many cases, it has been seen that such professionals win the trust of people by calling themselves chartered accountants, while they are not registered.
Income Tax Department’s action
The Income Tax Department has used data analytics, AI tools and third party sources to identify such cases across the country.
Initial investigations revealed that many taxpayers have claimed deductions for which they do not have any documentary evidence.
The department has started questioning both agents and taxpayers by conducting search and survey operations in such cases. So far, action has been taken at more than 150 places in many states.
“The ongoing verification exercise across 150 premises is expected to yield crucial evidence, including digital records, that will aid in dismantling the networks behind these schemes and ensure accountability under the law,” the Finance Ministry release said.
Along with this, many taxpayers have been sent notices asking them to update their ITR and withdraw the wrong claims.
Approximately 40,000 taxpayers have updated their returns in the last four months, voluntarily withdrawing false claims amounting to Rs 1,045 crore, the department claimed. However, many remain non-compliant, possibly under the influence of the masterminds behind these evasion rackets, it added.
Names of employees of government, railways, banking and private companies have been found involved in these frauds.
What next?
The department has clearly warned that if any taxpayer still does not remove the fake claim, then action like penalty, prosecution, and refund withholding can be taken against them. In some cases, investigations are also being conducted under criminal sections.
Important advice for taxpayers:
Fill ITR only with the help of a certified tax consultant or chartered accountant.
Be cautious if any tax professional offers commission in lieu of refund.
Keep all deductions and claims documents ready before filing ITR.
If any wrong claim has been made by mistake, file revised return through ITR-U as soon as possible.
Do not ignore warnings received on the Income Tax Department website or official communication channels.
Summing up…
The Income Tax Department has made it clear that misuse of the tax system will not be tolerated. Now not only taxpayers but also fake professionals who are misleading people in greed for commission are being targeted.
If you have also made a wrong claim for a refund or filed ITR on fake advice, then there is still time to correct it – otherwise, the consequences can be severe.
