Tax refund claims based on bogus investments has Income Tax department on alert

As a taxpayer, find out how the Income Tax department plans to root out bogus claims for tax refunds

Tax refund claims based on bogus investments has Income Tax department on alert

An income tax (IT) refund is that amount of tax a person has deposited (or has been deducted and deposited from his or her income), but is over and above the tax that was actually payable during the given financial year. This happens when a person’s tax deducted at source (TDS) was particularly high for a particular year, or the person is eligible under various tax-free expenses and investments. 

Income Tax dept taking action against refund claims based on bogus investments


Again, in such a case, the difference between the TDS deducted and the revised tax liability would be the IT refund. A bogus tax refund is when the person claims to be eligible for tax-free deductions based on forged or incorrect documents. Such incorrect documents may be a fake bank savings certificate or payment proof of a housing loan that wasn’t even taken.

Related: Are you an NRI? Here’s how you can claim a TDS refund 

Fictitious investments to evade tax

Under the Income Tax Act, Section 80C, together with Sections such as 80CCC and 80CCD, list various types of expenses and investments that effectively reduce our taxable income and subsequently our tax liability. 

While 80CCC and 80CCD offer tax benefits for contributions made towards certain pension schemes, 80C is an umbrella section that encompasses various expenses and investments. Provident funds, life insurances, saving certificates and schemes, fixed deposits, children’s tuition fees, and repayment of home loan principal and bonds are some of the investments that qualify for 80C benefits. The interest paid on a home loan too is eligible for tax benefit under Section 80EE. 

If unscrupulous enough, one can conveniently prepare false documents or forge and submit them as tax-free investments to the tax deducting authorities (employers, customers etc.) and the tax department. These would be tax-free investments and expenses that don’t exist! 

Related: 8 Incomes you shouldn't miss while filing your IT returns 

The taxman cometh

The Central Board of Direct Taxes (CBDT) is aware of bogus refund claims based on fictitious investments. It unearthed such fraudulent attempts during searches carried out in various parts of Punjab, Mumbai, and Bengaluru. The CBDT recently sent a stern signal to fraudsters by saying that the IT department has introduced additional controls to screen suspect refund claims. 

One such red flag was raised when similar claims were raised from the same IP address. The department is now auto-enabled to stop refunds in case a fraudulent return is detected. 

The next logical step for the department when a suspicious return is suspected is to initiate a tax assessment. The department is generally non-intrusive, which is in line with its aim of not harassing ordinary taxpayers. However, the department is within its rights to call for a high-pitched assessment when the need is felt.

Related: 8 Myths about tax filing debunked

 High-pitched assessment and committee

An assessment is categorised as ‘high-pitched’ when the IT officer estimates that the income of the person assessed could be more than twice of what they have declared for tax purposes. The Prime Minister had asked the department not to harass genuine taxpayers, so the CBDT has devised a way to give the assessee an opportunity to question a high-pitched assessment order.

In 2016, the CBDT set up local committees to address grievances on various assessment- and taxation-related issues. Recently, it also set up a three-member committee comprising three principal commissioners, to look into the issue of irrational demands of the department using the premise of high-pitched assessment. This was in response to people coming to the CBDT claiming that they have been subject to unreasonable high-pitched assessments. Accordingly, people can now approach the committee if necessary. Last year the CBDT took action against 12 assessing officers who were found to be raising dubious high-pitched assessments.

Related: Top 6 Most Common Mistakes to avoid when filing IT returns

 On the one hand, the CBDT took exception to the fact that people indulge in forged declarations and false refund claims, and called for a change in mentality by bringing in more honesty to the self-assessment process. It has taken new initiatives to tackle this problem as well. At the same time, it also reiterated its commitment to protect honest taxpayers by giving them a platform to raise assessment-related concerns. Also, it is also very important to use your tax refund wisely, so read through this to understand the same and make your money work for you. 

The income tax department is expected to reduce the processing time from 63 days to a single day!  Read more about this

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