200% Penalty for False Deduction Claims; Govt. Tightens ITR Norms to Curb Tax Evasion

Government shall Impose 200% Penalty of the tax due, 24% interest per annum, and even prosecution under Section 276C of the Income Tax Act for false deduction claims as Income Tax Return (ITR) Rules tighten to crack down on tax evasion.

In a major crackdown on tax evasion, the Income Tax Department has uncovered a widespread scheme involving over 90,000 salaried individuals who fraudulently claimed income tax deductions, resulting in an estimated loss of more than ₹1,070 crore to the national exchequer.

Following the revelation, the department has introduced a series of stringent measures to plug loopholes and enhance transparency in the tax filing process. These reforms are now being implemented through the updated Income Tax Return (ITR) utilities, specifically ITR-1 and ITR-4, which demand comprehensive documentary evidence for various deductions under the Income Tax Act.

Key Changes to Deduction Requirements

Under Section 80C, which allows deductions for investments like Life Insurance Corporation (LIC) premiums, Public Provident Fund (PPF), and Equity Linked Savings Schemes (ELSS), taxpayers are now required to submit precise policy numbers or official document IDs.

For Section 80D, which covers health insurance premiums, the insurer’s name along with the policy number must be disclosed — eliminating the possibility of unverifiable lump-sum declarations.

Similarly, deductions under Sections 80E, 80EE, and 80EEA, related to education and housing loans, will now require complete disclosure of the lender’s name, loan account number, and sanction date. For electric vehicle purchases claimed under Section 80EEB, taxpayers must now submit the vehicle's registration number.

Using Data to Enhance Compliance

The revised system aligns with the government’s broader effort to enhance verification through integration with the Annual Information Statement (AIS), which consolidates data from banks, financial institutions, and employers. This allows authorities to automatically cross-check deduction claims with actual financial records, significantly reducing the scope for manipulation.

Non-Compliance Comes at a Heavy Cost

Failure to meet the new compliance standards may invite harsh consequences, including penalties of up to 200% of the tax due, 24% interest per annum, and even prosecution under Section 276C of the Income Tax Act.

A Move Towards Greater Transparency

By mandating detailed disclosures and enforcing data-backed verification, the Income Tax Department aims to foster greater accountability, eliminate bogus claims, and strengthen the integrity of the tax system.

This latest development sends a strong signal to taxpayers: transparency is no longer optional, and non-compliance carries significant risks.

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Tax Evasion

Amit Sharma

Amit Sharma is the Content Editor at JurisHour. He has been writing about the Indian legal market. He has covered tax & company litigation stories from the Supreme Court, High Courts and Various Tribunals. Amit graduated from MLSU Law College with B.A.LL.B. and also holds an LL.M. from MLSU, Udaipur, Rajasthan. An Advocate in Taxation, and practised in Tribunals as well as Rajasthan High Court and pursued Masters in Constitutional Law. He started out small with little resources but a big plan to take tax legal education to the remotest locations across India and eventually to the world. His vision is to make tax related legal developments accessible to the masses.