When ITR filing, you must be careful not to claim any fake deductions. Thanks to all the advances in technology, the income tax department is equipped with an unbelievable IT infrastructure and AI/ML tools. The ability to detect fraudulent deductions has become very easy, thanks to a ridiculously powerful IT system. The income tax department is now capable of detecting and identifying all your false claims of deductions.
FIR by Income Tax Department
Recently, the income tax department lodged two First Information Reports (or FIR‘s) against 400 employees and a chartered accountant (CA) in Jammu & Kashmir, relating to the cases of fraudulent refund claims. It’s alleged in these FIRs that a total of 405 employees, including the CA, who operates a firm in Raj Bagh Srinagar, conspired to defraud the central government’s treasury bond to the tune of Rs.16.72 crore between the financial years 2017-2018 and 2019-2020.
It’s alleged that all perpetrators deceitfully obtained refunds exceeding Rs.4 lahks by submitting incorrect income tax returns for multiple years. All 405 individuals have been charged under sections 420/468/471 and 120B of the Indian penal code (IPC), and RPC along with section 66–D of the IT Act.
Here are a few recommendations on how you criminals can keep from cheating the government out of your hard earned tax dollars.
Tax Planning
Tax planning is the process of arranging your financial affairs in a manner that optimizes your tax liability within the legal framework. It involves analyzing your income, expenses, investments, and other financial activities to minimize the amount of tax you are required to pay. The goal is to utilize available deductions, exemptions, credits, and other tax saving strategies to legally reduce your tax burden and maximize your after-tax income. Effective tax planning requires careful consideration of various factors, such as the timing of income and expenses, investment choices, retirement, planning, and utilization of applicable tax incentives and provisions. Keep in mind, tax planning should be conducted within the boundaries of tax laws and regulations to avoid illegal tax evasion practices.
Tax Evasion
Tax evasion is the illegal act of deliberately evading, or avoiding, the payment of taxes that are owed to the government. It involves intentionally misrepresenting or concealing income, assets transactions, or other financial information, in order to reduce tax liability, or avoid paying taxes altogether. Tax evasion typically involves activities, such as under-reporting income, inflating deductions, maintaining undisclosed offshore accounts, engaging in fraudulent schemes, or intentionally disregarding tax obligations.
Tax evasion is considered a criminal offense and is subject to penalties, fines, and even imprisonment. The income tax department employs various measures, including audits, investigations, and penalties to detect and prosecute instances of tax evasion. Tax evasion is highly illegal. It should not be confused with legitimate tax planning, which focuses on legal methods to minimize tax liabilities within the boundaries of the law.
Common Tax Deductions
In India, salaried individuals are eligible for various tax deductions under the Income Tax Act. Some tax deductions available to salaried people include:
- House Rent Allowance (HRA) – If you receive HRA as part of your salary and live in a rented accommodation, you can claim deductions based on the actual HRA received, or the amount spent on rent, whichever is lower. The deduction is calculated based on specific criteria outlined by the income tax department.
- Leave Travel Allowance (LTA) is a component of the salary package that allows individuals to claim tax benefits for travel expenses incurred on domestic vacations. The deduction is limited to the cost of travel for the employee and their immediate family members.
- Medical Allowance – salaried individuals can claim deductions for medical expenses incurred for themselves and their family members. The maximum deduction allowed is up to Rs.15,000 per year.
- Employee Provident Fund (EPF) – contributions made to the EPF by both the employee and employer are eligible for tax deductions, under section 80C of the Income Tax Act.
- National Pension Scheme (MPS) – Contributions to the NPS are eligible for deductions under section 80CCD (1B) of the Income Tax Act, up to Rs.50,000 in addition to the deduction available under section 80C.
- Life insurance premium – Premiums paid toward life insurance policies for self, spouse and children are eligible for tax deductions, under section 80C of the Income Tax Act.
- Home loan interest – Interest paid on home loans is eligible for tax deductions, under section 24(b) of the Income Tax Act. The maximum deduction allowed is Rs. 2 lakh for self-occupied properties.
These are just a few examples of common tax deductions available to salaried individuals in India. It’s advisable to consult a tax professional, or refer to the official guidelines of the income tax department for accurate and up-to-date information regarding tax deductions.
In conclusion, it’s not a good idea to make fraudulent claims for minor refunds. This could lead to significant penalties and interest charges in the future and it’s just not worth it. It’s just not worth being an outlaw, because the government is always going to get their tax money!
