Faked tax deductions? IT Dept to unleash AI to catch you

Kolkata: If you have claimed fake income tax deductions, prepare to respond to notices of the Income Tax Department. Tax officials have got strict with zero tolerance approach to an extent that automated notices are being serve to tax filers if there is any mismatch of data in tax filings. And their weapon in this quest of revenue is artificial intelligence tools and data analytics to comb income tax returns.

According to reports, about 40,000 tax payers have withdrawn false deductions which add up to a total of Rs 1,045 crore. Income tax officials say this drive is to weed out fraudulent practices to get refunds from the government when it is not due. Agents who guarantee refunds through false claims are said to be active in the ecosystem who mislead tax payers into this practice.

The most abused sections for income tax deductions centre around HRA or house rent allowance, donations and interest paid on loans such as education loans and those taken for healthcare. While interest on loans come under the Section 80 of the Income Tax Act, HRA falls under Section 10(13A) and donations are under Section 80G of the same legislation.

There is no reason to think that AI is being employed only to comb deductions. Any mismatch between the ITR and AIS (Annual Information Statement) and Form 26AS are being looked into for discrepancy. However, the deductions have become a favourite hunting ground for those seeking to get away with less tax. Expert agencies have also laid much of the blame at the door of the refund agents. "Many taxpayers fell into the trap of refund agents, who claimed they could secure large refunds through false declarations... But now, with AI-driven scrutiny, mismatches between ITRs and income data from AIS and Form 26AS are being flagged instantly," mentioned TaxBuddy.

Predictably, the Income Tax Act has strict provisions for claiming undue deductions, whether by commission or omission. The penalty can be a staggering 200% of the tax owed by the ITR filer. Besides that, interest charges up to 24% a year will be slapped. Even jail terms cannot be ruled out in some extreme cases.

If you have indulged in such practices, consult an income tax expert and reach out for ITR-U immediately. It is a form that allows a taxpayer to rectify errors and update earlier ITRs. Please note that one can do so within four years from the end of the concerned assessment year, when the correction has to be made. For example, if there has been any such false claim made FY24, one can file ITR-U any time between April 1 2025 and March 31m 2029. In short, this is the best opportunity of a taxpayer to report errors and pay up.