Income Tax Refund: Claiming a false income tax refund can be very costly. Taxpayers may end up spending up to five times the total refund amount. This can be easily detected with the help of AI and data analytics. Learn the details.
Income Tax Refund: Sometimes, some taxpayers make false income tax refund claims. This may result in receiving some amount, but this can lead to serious trouble. This can be easily detected with the help of AI and data analytics.
In such a situation, the tax department will not only recover the refund amount from the taxpayer, but will also impose interest and penalties. Some expenses can be five times or more. Legal hassles are also a separate issue.
How can expenses increase?
Now, let’s say you’re in the 20% tax bracket and you claim an incorrect deduction of ₹1 lakh. This could help you save ₹20,000 in taxes. However, if this incorrect claim is detected, you could be stuck with various expenses.
You could end up paying ₹24,000 in tax and interest. Furthermore, invalid claims can attract a penalty of up to 200%, or ₹40,000. Adding CA or lawyer fees and a 125% compounding fee, the total expense could increase by another ₹30,000-₹35,000. In this case, saving ₹20,000 could result in a total expense of up to ₹1 lakh.
Legal Consequences of Incorrect Claims
The tax department can investigate incorrect claims in its ITR using AI and data analytics. If the claim is found to be incorrect, a detailed scrutiny of the matter may occur, and you could receive a tax demand notice. Under Section 270A, a penalty of up to 200% of the incorrectly reported income can be imposed.
Additionally, under sections 276C and 277, if the tax evaded exceeds ₹25 lakh, the punishment is imprisonment for a term of six months to seven years and a fine. In minor cases, the punishment is imprisonment for a term of three months to two years and a fine.
What to do if the claim is incorrect
- If you claimed an incorrect deduction in your ITR, you can correct it.
- Revised ITR for FY 2024-25 can be filed by December 31, 2025.
- If incorrect deductions were made in previous years, you can file an updated return (ITR-U).
- ITR-U can be filed within 4 years from the end of the relevant assessment year.
