Revise your returns or face penalty: Taxman detects fake donations, issues warning

As the season for annual declarations on investments and deductions approaches, the income tax department has alerted both employees and employers regarding widespread instances of bogus claims. These claims pertain to donations made to political parties and charitable organisations, as well as false assertions related to investments and interest payments.

This scrutiny stems from searches and surveys conducted by the tax department over the past few years, a ToI report said. According to the report (by Sidhartha), these investigations uncovered numerous cases where individuals claimed deductions for donations made to unrecognised political parties that benefit from certain tax exemptions.

Authorities discovered that in several instances, money was returned to the donors, indicating that actual donations were often not made.


According to a tax officer, “For political donations, there is no third-party verification, and individuals have been taking a chance, expecting they would not be caught. We have seen instances of employees of some companies indulging in fraudulent claims like these; there are thousands of such cases.”

A more in-depth analysis revealed that bogus donations were also made to charities. Additionally, some individuals claimed interest payments on loans for higher education, despite not having taken any loans.

There were also cases where individuals shared their Permanent Account Numbers (PAN) to wrongfully claim tax-free house rent allowances without actually renting any property.

Areas of Concern

Violations were observed across various sections of the Income Tax Act, including:

• Investments (Section 80C)
• Health insurance premiums (Section 80D)
• Education loans (Section 80E)
• Specified charities (Section 80G)
• Political parties and electoral trusts (Sections 80GGB and 80GGC)

In response to these violations, the investigation wing is developing a standard operating procedure to approach employees, employers, and individuals, urging them to revise their tax returns or face potential legal action.

Taxpayer Response and Future Actions
As of December 2024, approximately 90,000 taxpayers have voluntarily withdrawn incorrect deduction claims, totaling around Rs 1,070 crores, while also paying additional taxes.

Officials noted that the actual number of fraudulent cases is nearly three times higher than the updated returns.

A new drive is being initiated to target employers, aiming to educate their employees, particularly in companies where such violations are more prevalent.