During this season on ITR Filing, one must be careful and not claim any fake deductions. In this age of digital era, with Income Tax Department equipped with a robust IT infrastructure and AI/ML tools, the ability to detect fraudulent deductions has become very easy. Thanks to the increasingly powerful IT systems, Income Tax Department is now capable of detecting and identifying such false claims of deductions.
FIR by Income Tax Department
Recently, Income Tax department lodged two First Information Reports (FIRs) against 400 employees and a Chartered Accountant (CA) in Jammu and Kashmir, relating to cases of fraudulent refund claims. It has been alleged in these FIRs that a total of 405 individuals, including the mentioned CA who operates a firm in Raj Bagh Srinagar, conspired to defraud the Central Government's treasury by an amount of Rs.16.72 crore between the financial years 2017-18 and 2019-20.
The FIRs, which have been submitted to the Senior Superintendent of Police, Crime Branch, Srinagar, provide comprehensive information about the accused, including their names, addresses, PAN numbers, bank accounts, and the specific amounts they fraudulently claimed as refunds by deliberately filing incorrect Income Tax Returns in a covert manner.
The allegations state that all the perpetrators deceitfully obtained refunds exceeding Rs. 4 lakhs by submitting incorrect Income Tax Returns for multiple years. Consequently, all 405 individuals have been charged under sections 420/468/471 and 120B of the Indian Penal Code (IPC) & RPC, along with section 66-D of the I.T. Act.
The intention of this post is to raise awareness about the dangers associated with providing false information on your income tax return.
Consult a CA or Tax Advisor for Tax planning which will help you reduce your tax outflow.
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Income Tax Notice Sample for fake deductions
Following is the sample of Income Tax notice received under section 133(6) by an individual who claimed many fake deductions on poor advise of an unqualified tax consultant. It can be clearly seen that this person had claimed & received refund from the department after claiming various exemptions under section 10, section 24b, deductions under chapter VIA such as 80C, 80D, 80DD, 80DDB, 80GGC, 80U, etc.
Tax planning refers to the process of arranging your financial affairs in a manner that optimizes your tax liability within the legal framework. It involves analyzing your income, expenses, investments, and other financial activities to minimize the amount of tax you are required to pay. The goal of tax planning is to utilize available deductions, exemptions, credits, and other tax-saving strategies to legally reduce your tax burden and maximize your after-tax income. Effective tax planning requires careful consideration of various factors, such as the timing of income and expenses, investment choices, retirement planning, and utilization of applicable tax incentives and provisions. It is important to note that tax planning should be conducted within the boundaries of tax laws and regulations, avoiding illegal tax evasion practices.
Tax evasion refers to the illegal act of deliberately evading or avoiding the payment of taxes that are owed to the government. It involves intentionally misrepresenting or concealing income, assets, transactions, or other financial information in order to reduce tax liability or avoid paying taxes altogether. Tax evasion typically involves activities such as underreporting income, inflating deductions (which was done in the case mentioned above), maintaining undisclosed offshore accounts, engaging in fraudulent schemes, or intentionally disregarding tax obligations.
Tax evasion is considered a criminal offense and is subject to penalties, fines, and even imprisonment. Income Tax Department employ various measures, including audits, investigations, and penalties, to detect and prosecute instances of tax evasion. It is important to note that tax evasion is illegal and should not be confused with legitimate tax planning, which focuses on legal methods to minimize tax liability within the boundaries of tax laws.
Common Tax Deductions
In India, salaried individuals are eligible for various tax deductions under the Income Tax Act. Some common tax deductions available to salaried people in India include:
House Rent Allowance (HRA): If you receive HRA as part of your salary and live in a rented accommodation, you can claim deductions based on the actual HRA received or the amount spent on rent, whichever is lower. The deduction is calculated based on specific criteria outlined by the Income Tax Department.
Leave Travel Allowance (LTA): LTA is a component of the salary package that allows individuals to claim tax benefits for travel expenses incurred on domestic vacations. The deduction is limited to the cost of travel for the employee and their immediate family members.
Medical Allowance: Salaried individuals can claim deductions for medical expenses incurred for themselves and their family members. The maximum deduction allowed is up to Rs. 15,000 per year.
Employee Provident Fund (EPF): Contributions made to the EPF by both the employee and employer are eligible for tax deductions under Section 80C of the Income Tax Act, subject to certain conditions.
National Pension Scheme (NPS): Contributions to the NPS are eligible for deductions under Section 80CCD(1B) of the Income Tax Act, up to Rs. 50,000 in addition to the deduction available under Section 80C.
Life Insurance Premium: Premiums paid towards life insurance policies for self, spouse, and children are eligible for tax deductions under Section 80C of the Income Tax Act, subject to certain limits.
Home Loan Interest: Interest paid on home loans is eligible for tax deductions under Section 24(b) of the Income Tax Act. The maximum deduction allowed is Rs. 2 lakh for self-occupied properties.
These are just a few examples of common tax deductions available to salaried individuals in India. It is advisable to consult with a tax professional or refer to the official guidelines of the Income Tax Department for accurate and up-to-date information regarding tax deductions.
To all individuals, it is advised not to make fraudulent claims for minor refunds, as it could lead to significant penalties and interest charges in the future.