Key Highlights

• Under Section 270A of the Income Tax Act, misreporting income can attract penalties up to 200% of the tax due, along with 24% annual interest and potential prosecution under Section 276C.
• The Income Tax Department utilizes the Annual Information Statement (AIS) to cross-verify claims, ensuring transparency and reducing fraudulent deductions.

It was discovered that more than 90,000 salaried people had fabricated deduction claims, costing India's tax revenue more than ₹1,070 crore.

Since the Income Tax Department has tightened its filing procedures this time, it is much harder to carry out fraudulent tax deductions.

For deductions under important provisions of the Income Tax Act, the updated Income Tax Return (ITR) utilities—ITR-1 and ITR-4—now demand thorough documentation.

Policy numbers or document IDs are now required for claims under Section 80C, which covers investments like LIC, PPF, and ELSS. Taxpayers are required by Section 80D to disclose the name and policy number of their health insurance company. With this change, the days of ambiguous, one-size-fits-all declarations are over.

The crackdown also includes loan deductions. Education and home loan benefits under Sections 80E, 80EE, and 80EEA now require detailed disclosures, such as lender names, loan account numbers, and sanction dates. Section 80EEB requires disclosure of vehicle registration numbers for electric vehicle deductions.

Also Read: ITR Deadline Extended for Most, But Not Everyone; Are You an Exception?

These reforms use the Annual Information Statement (AIS) to allow the department to cross-check claims against actual financial records. The goal is clear: to eliminate fake claims, enforce accountability, and increase compliance through automated verification.

Taxpayers must now provide proper documentation for every deduction. Failure to comply may result in penalties of up to 200% of the tax owed, 24% annual interest, and even prosecution under Section 276C.

This compliance-first overhaul marks a watershed moment in India's tax framework. For taxpayers, the message is clear: adapt to the new documentation-heavy process or face stiff penalties.