Fake Deductions in ITR Can Land You in Jail: Harsh Penalties Await Tax Evaders

The Income Tax Department is stepping up enforcement around false deductions claiming by taxpayers. They are specifically using data analytics and artificial intelligence technology in identifying cases. It looks like most cases revolve around Health Reimbursement Arrangements, health insurance, and general donations. Repercussions will come if deduction claims are proved, which is punishable by fines or potential jail time. Deduction Action cases Experts claim the Tax Income Department has the authority to act for fake deduction claims using section 270A. Wrongly reporting and claiming taxes could lead to a massive 200 percent penalty for outstanding taxes. Alongside this, 24 percent interest can be charged under sections 234B and 234C. On top of this, section 276 allows for up to 7 years of imprisonment to be served. There is no doubt that the Income Tax Department is zealous in pursuing fake deduction claims.New ITR forms have greater disclosures than before.To limit such occurrences, the Income Tax Department has added extra disclosures such as calculating HRA, naming the insurance company for s80D, and other items. A high value transactions of the taxpayer is captured within the Annual Information Statement (AIS). This helps identify faked deduction claims quickly.ITR-U can be filed to rectify mistakes.As per the experts, every taxpayer is entitled to unclaimed deductions, so if there is unintentional claimed fake deductions, taxpayer is eligible to file ITR-U. This form is designed to allow individuals to rectify mistakes, disclose unreported income, and retract illegitimate deduction claims. However, there is an added tax liability for the taxpayer. But there is a silver lining, is reducing this extra tax liability. So, for every ITR-U filed, the added tax liability decreases.Specialists are recommending an eariler filing dateThis time the Income Tax Department has relaxed the deadline for filing returns. Taxpayers now have until the 15th of September. Despite this extension however, experts suggest filing returns much earlier than the deadline. There are many benefits of filing returns early. Moreover, the taxpayers must substantiate the claimed deductions with relevant documentation, or else, the Income Tax Department will not accept them. This will aid taxpayers with the Income Tax Department’s payslip notice.