Deceptive Income Tax Return (ITR) practices by taxpayers often result in an Income Tax notice from the tax department.
Deceptive Income Tax Return (ITR) practices by taxpayers often result in an Income Tax notice from the tax department. Taxpayers are required to file Income Tax Return (ITR) when their total income in a financial year is above the basic exemption limit. It is recommended to correctly report all income sources and claim legitimate deductions for receiving Income Tax Refund.
However, many taxpayers try to make false claims in their ITRs for higher refunds. Such taxpayers often end up receiving notices from the Income Tax Department. This article looks at some of the common ways in which many ITR filers try to get more refunds but end up getting income tax notices.
According to Kapil Rana, Founder of HostBooks, some people are doing the following activities while filling their ITRs so that they get more income tax refunds but end up getting an income tax notice:
Persons trying to get more ITR refunds ignore or do less reporting of such income in their IT returns on which TDS was not deducted; hence, they think that these are not the focus of the income tax department. These incomes may include interest income from different sources, like interest in a savings bank account, interest on advances given, a few commissions, and income on the sale of securities through the stock market.
In most cases, a person trying to get more IT refunds claims such income as exempt for which he is not eligible. “For example, a salaried person can claim HRA exemption only if he has actually paid rent and produces evidence of his rent payments before disbursement authority. But in this case, a person can claim HRA exemption by producing false evidence of his rent payments, even if he/she does not pay any amount towards rent,” says Rana.
In most of the cases where a person is trying to get more ITR refunds, he makes a false claim of a non-eligible deduction from total income when he is not eligible to get this deduction. In some other cases, a person makes an ineligible enhancement in claiming a deduction while he is eligible for a lower amount. For example, he can claim deductions 80DD, 80G, 80GG, 80U, etc. All these fake claims could have enhanced his IT refund but ends up also getting an income tax notice.
Sometimes a person has casual income like capital gains income, prize money, winning game income, and winning lottery income, but while preparing his IT return, he ignores reporting such income so that an IT refund may be claimed or tax can be avoided.
People might claim deductions for expenses or investments they didn’t actually incur. For instance, they might inflate their medical expenses or charitable donations to claim higher deductions than they are eligible for.
Individuals may falsely claim HRA by providing fake rent receipts or double-claiming rent allowances for both them and their spouses. Tax authorities can cross-check these claims with rental agreements and other supporting documents. Individuals might overstate their actual house rent expenses to claim a higher HRA deduction than justified.
Some individuals claim allowances under section 10 of the Income Tax Act with fictitious receipts. This includes allowances such as conveyance, helper, and food allowances.
Failure to report high-value transactions like deposits exceeding Rs 10 lakh in a savings account, credit card payments exceeding Rs 1 lakh, and fixed deposits exceeding Rs 10 lakh can draw the attention of tax authorities. These transactions are monitored as part of anti-money laundering efforts.
Instead of making fake claims or avoiding certain disclosures for higher refunds, ITR filers should try to avoid any deceptive practices to avoid income tax notices.
While filing an ITR, a person should take care to report all his income as well as claim only eligible deductions to avoid notice served by the Income tax department. In this process, he or she can refer to AIS for all his reportable income and refer to Form 26AS statements for all the tax claims.
It is important for taxpayers to ensure there is no mismatch in the income reported in their Form 26AS and ITRs. If the income declared in the ITR doesn’t match the income reported in Form 26AS, it raises red flags. Tax authorities compare these two documents to identify inconsistencies.
“All taxpayers are being advised to take care in the preparation of their return of income; otherwise, an income tax notice can be served by the income tax department because DIT has an advance control over income monitoring through the AIS, Form 26AS, and other digital control systems. Engaging in such deceptive practices can lead to penalties, fines, and legal consequences. Accurate reporting and proper documentation are essential to maintaining compliance with tax laws and avoiding issues with tax authorities,” says Rana.
Source: https://www.financialexpress.com/money/8-tricks-taxpayers-apply-for-higher-income-tax-refunds-but-end-up-getting-notices-3218094/
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