Bogus Income Tax Refund Claims

The Income Tax Department has warned about fraudulent income tax refund claims. Taxpayers should be aware that claiming false deductions and exemptions, and filing false or exaggerated claims for refunds is a punishable offence, which could lead to severe penalties, including imprisonment. This warning comes amid the ongoing income tax return (ITR) filing season for the Financial Year 2024-25 (AY 2025-26), for which the due date to file ITR has been extended to 15th September 2025 (for non-audit taxpayers).

What are Bogus Income Tax Refund Claims?

Bogus claims refer to situations where a taxpayer under-reports their income, claims fraudulent expenses, or exaggerates deductions to receive a higher refund from the Income Tax Department. The Income Tax Department emphasises that all claims must be accurate and verifiable. The department has implemented a systematic approach to identify and scrutinise high-risk refund claims.

Example of Bogus Refund Claims

Mrs. B, a taxpayer, decides to claim excessive deductions under sections such as 80C (for investments) and 80D (for insurance premiums). For example, she claims ₹1.5 lakh for a life insurance premium, when her actual premium paid was ₹50,000. Additionally, she claims medical insurance of Rs. 25,000 even though she did not have one. This leads to an inflated tax refund claim.

Income Tax Department Crackdown on Bogus Claims

The Income Tax Department made a press release on 14th July 2025 stating that it had started a nationwide crackdown on taxpayers who had claimed excess and false deductions and exemptions to avoid taxes. The tax department identified Sections 10(13A), 80GGC, 80E, 80D, 80EE, 80EEB, 80G, 80GGA, and 80DDB as those sections where taxpayers claim the most false claims without valid justifications.

The Income Tax Department uses third-party sources such as banks and employer data to verify the taxpayer's claims. Taxpayers claiming such exemptions and deductions to evade taxes and to claim excess refund will be punishable by imposing high penalties and prosecution. 

Consequences of Bogus Claims

If an investigation reveals that claims are fraudulent, the taxpayer may be required to provide evidence to support their claims. Failure to do so can lead to legal action and penalties. The department has stated that notices will be sent to taxpayers suspected of making high-risk claims, regardless of whether refunds have already been issued.

How to Avoid Bogus Refund Claims?

To avoid making bogus income tax refund claims, it is crucial to ensure accurate reporting of all income and legitimate deductions on your tax return. Double-check your return for accuracy before submission to prevent errors that could lead to delays or audits. Additionally, maintaining thorough records of all income, expenses, and supporting documents is essential, as these can serve as evidence if your claims are questioned. Staying informed about current tax laws and regulations is also important to avoid unintentional mistakes and ensure full compliance with tax requirements. By adhering to these practices, you can reduce the risk of filing fraudulent claims and ensure a smoother tax filing process.

Conclusion

Taxpayers need to be very careful while filing their income tax returns without raising any incorrect claims. All the submissions made by taxpayers are being monitored by the Income Tax Department, and those individuals trying to misuse the system with the intention of raising bogus refund claims will be dealt with appropriately. It's important to provide accurate information, not only to stay compliant but also to help ensure that refunds are processed smoothly and on time.