Over 90k employees falsely claim Rs 1,000 crore in tax deductions

Employees in PSUs, MNCs, LLPs, and private companies were primarily found making incorrect claims, often within the same organizations, raising suspicions of widespread errors

In a significant development, approximately 90,000 salaried individuals, including employees from both public sector undertakings (PSUs) and private companies, have voluntarily withdrawn incorrect tax deduction claims amounting to Rs 1,070 crore by the end of December 2024. This comes after a series of investigations by the Income Tax Department that uncovered widespread misuse of tax deductions under various sections, including 80C, 80D, 80E, 80G, and others.

Investigations reveal widespread misuse of tax deductions

The Income Tax Department's recent search and seizure operations highlighted numerous cases where employees had incorrectly claimed deductions, significantly reducing their tax liabilities. These erroneous claims were primarily found among employees working in PSUs, multinational corporations (MNCs), limited liability partnerships (LLPs), and private limited companies. In many instances, individuals from the same organizations were found to have made similar incorrect claims.

The department’s analysis revealed discrepancies between the deductions claimed by taxpayers under sections 80GGB and 80GGC and the total receipts reported by the donees in their tax returns. Suspicion also surrounded the deductions made under sections 80C, 80E, and 80G. As a result, the department has identified a list of common employers—also known as TDS deductors—and is reaching out to those who are suspected of making fraudulent claims.

Outreach and rectification efforts

The Income Tax Department's investigation also uncovered that some taxpayers had been misled by unscrupulous elements who guided them into making incorrect deductions or claiming refunds they were not entitled to. To address these issues and prevent future mistakes, the department has been conducting extensive outreach programs with employers, aiming to raise awareness about the legal consequences of such claims and inform taxpayers about the process of rectifying errors in their returns.

As of December 31, 2024, nearly 90,000 taxpayers had voluntarily corrected their inaccurate claims, resulting in the payment of additional taxes. The Income Tax Act permits taxpayers to file updated returns within two years of the relevant assessment year (for AY 2022-23 to 2024-25), subject to payment of additional taxes to rectify the mistakes.

Encouraging voluntary tax compliance

To further improve tax compliance and minimize litigation, the Income Tax Department is intensifying its efforts to encourage voluntary tax correction. The ongoing outreach programs with employers will continue, focusing on educating employees and employers alike about the importance of accurate tax filings and the potential consequences of making fraudulent or incorrect claims.

The department's efforts highlight a growing commitment to ensuring fairness and transparency in tax reporting, with a focus on reducing fraudulent practices and fostering a culture of voluntary compliance among taxpayers.