15 July 2025: PIB Summary For UPSC

1. Income Tax Department cracks down on bogus claims of deductions & exemptions

(Source – PIB (Press Information Bureau), July, 15, 2025)

Topic: GS Paper 3 – Indian Economy: Tax Administration

Context

The Income Tax Department has launched a nation‑wide verification drive to curb organized tax evasion linked to fraudulent claims of deductions and exemptions in income tax returns, in collusion with intermediaries.

Content

Background

• The Income‑tax Act, 1961 provides various deduction/exemption provisions (Sections 10(13A), 80G, 80E, 80DDB, etc.)

• These are intended for genuine reliefs—e.g. housing rent allowance, health expenditure, education, donations

Current Action

• A large‑scale verification operation was initiated on 14 July 2025, covering ~150 premises across Maharashtra, Tamil Nadu, Delhi, Gujarat, Punjab, and Madhya Pradesh.

• Investigations reveal organized rackets run by ITR preparers and intermediaries filing fictitious claims, including fake TDS submissions.

Mechanism of Detection

• Use of third‑party financial data, intelligence inputs, and AI‑enabled analytics

• Search and seizure operations corroborated the misuse of deduction sections 10(13A), 80GGC, 80E, 80D, 80EE, 80EEB, 80GGA, 80DDB.

Affected Persons

• Employees of MNCs, PSUs, academic institutions, entrepreneurs, government bodies

• Taxpayers were lured with promises of inflated refunds in exchange for a commission

Voluntary Compliance & Outreach

• Under the ethos of ‘Trust Taxpayers First’, the Department carried out SMS/email advisories and on/off‑campus outreach

• In the past four months, roughly 40,000 taxpayers voluntarily revised their returns, withdrawing fraudulent claims amounting to ₹1,045 crore.

Enforcement

• Non‑compliance will be met with penalties, prosecution, and further action

• Ongoing verification across multiple premises expected to gather digital evidence to dismantle rackets and support legal action.

Key Points for UPSC

• Sections misused: 10(13A), 80GGC, 80E, 80D, 80EE(E), 80G, 80GGA, 80DDB

• Technology in tax administration: AI analytics, data integration from third‑party sources

• Policy approach: Voluntary compliance, taxpayer outreach, preventive measures

• Enforcement strategy: Search‑seizure, penalties, prosecution

Analysis

• Illustrates the effectiveness of combining data‑driven policing with voluntary compliance initiatives

• Highlights vulnerabilities in tax‑benefit design and exploitation by informal intermediaries

• Shows progressive digital strengthening but also reveals communication gaps (e.g. abandoned email IDs leading to missed notices)

• Sets a precedent for future action against fraudulent tax practices, enhancing trust through transparency and enforcement

Conclusion

• Strengthen verification and risk detection systems using AI and big data

• Regularize and certify ITR preparers to prevent misuse

• Enhance taxpayer awareness and communication channels to reduce ignored notices

• Implement tighter controls on claims under high‑risk deduction heads

• Prosecute and penalize habitual offenders to deter rackets and protect revenue integrity

Practice Question: “Tax exemption provisions in the Income‑tax Act, 1961 are often misused by unethical intermediaries resulting in large revenue losses. Examine the Income‑Tax Department’s recent measures to curb this malpractice. Critically evaluate the role of technology and voluntary compliance strategies in combating tax evasion.”

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