Heavy penalty for false refund claims: I-T dept

HYDERABAD: The income-tax department has appealed to taxpayers to rectify false claims of refund, if any, by filing revised returns for the current assessment year and updated returns for the previous assessment year.

Taxpayers, who do not make use of the option will have to pay a heavy penalty – 200 per cent of the tax payable with 12 per cent interest – and may even face imprisonment if the department detects the fraud later. The appeal, made by Mithali Madhusmitha, Principal Chief Commissioner of Income Tax, Andhra Pradesh and Telangana, at a press conference here on Friday, comes in the wake of a massive refund fraud detected by I-T sleuths in the two Telugu states.

Though the I-T officials did not reveal the actual amount of fraudulent claims, it is expected to run into crores of rupees given the magnitude of the illegal practice opted by the assessees and tax practitioners in nine surveys carried out in the two states.

“Salaried employees were found claiming refunds, in some cases as high as 90 per cent of the tax deducted at source (TDS), by making false claims of exemptions. They have been taking advantage of the simplified process of filing returns in which the taxpayer need not submit the proof to claim exemptions,” said Madhusmitha.

A steep increase in the year-on-year growth rate of refunds from 37 per cent in 2021-22 to 84 per cent in the next assessment year raised alarm and I-T officials swung into action and held surveys at nine places.

Both the assessee and the intermediary (tax practitioners) agreed to have committed fraud under oath, the Principal Chief Commissioner of Income-Tax said, adding that no decision was taken yet on pressing criminal charges against the fraudsters.

Explaining the revised and updated returns, Chief Commissioner Shishir Agarwal said taxpayers who had already filed their returns by making false claims of the refund could submit revised returns rectifying the anomalies before December 31, 2023. They could file updated returns paying 25 per cent additional tax before March 31, 2025, and with 50 per cent additional tax before March 31, 2026.

Taxpayers, who filed returns erroneously in AY 2022-2023 can file updated returns paying 50 per cent additional tax before March 31, 2025.