The Income Tax Department has initiated a major action against individuals who obtained tax refunds through false tax deductions and exemptions across the country. The department conducted search operations at over 150 locations as part of a verification exercise, aimed at dismantling the networks behind fraudulent tax evasion activities and ensuring accountability under the law.

Over the last 4 months, about 40,000 taxpayers themselves withdrew wrong claims of Rs 1,045 crore, the Finance Ministry said in a release issued on Monday.

“Over the past year, the IT Department has carried out extensive outreach efforts, including SMS and email advisories, nudging suspected taxpayers to revise their returns and pay the correct tax. Physical outreach programs, both on and off campus, have also been conducted. As a result, approximately 40,000 taxpayers have updated their returns in the last four months, voluntarily withdrawing false claims amounting to Rs 1,045 crore,” the ministry said.

However, many remain non-compliant, possibly under the influence of the masterminds behind these evasion rackets, it added.

Also read: Income Tax Dept cracks down on fake ITR refunds: Bogus deductions, exemptions under scanner

How was the fake return exposed?

The Income Tax Department received inputs through third-party data, AI based systems and ground intelligence that a large number of taxpayers have taken fake refunds by claiming wrong deductions and exemptions. After this, the department conducted search operations at more than 150 places in many states including Maharashtra, Tamil Nadu, Delhi, Gujarat, Punjab and Madhya Pradesh.

Which exemptions were fake?

In these ITRs, taxpayers claimed many deductions and exemptions that did not actually exist. These include:

-Fake HRA (House Rent Allowance) claims

-Wrong information about educational loan interest

-Fake deduction on health insurance premium

-False claim on home loan interest

-And in some cases, claims of deductions by showing donations to political parties

Who were the people involved in this?

According to the I-T department, those making false claims include not only ordinary taxpayers, but also employees of government departments, public sector undertakings (PSUs), multinational companies and educational institutions and many small businessmen. These people often show false deductions under the influence of ITR filing agents to get maximum refund.

Also read: ITR Filing 2025: Filed the wrong ITR form? You could lose your refund and face…

What can happen next?

The I-T department has made it clear that this is just the beginning. If a taxpayer still provides incorrect information and does not revise it, he can be fined or even criminal action can be taken against him. The department is also constantly sending alerts to taxpayers through email and SMS.

Lesson: The lure of a refund can prove costly

Claim deductions only on the basis of Form 16 or authentic documents.

If an ITR agent advises you to fill in incorrect information by luring you with a higher refund, be careful immediately.

If you have made a fake claim by mistake, there is still time—file a revised return.

The tax system has now become digital and data-driven, so there is no way to escape.