Tax Crackdown: India's Tax Dept Uncovers Massive Refund Fraud in Multiple States

In a sweeping verification operation launched on July 14, 2025, the Income Tax Department of India has initiated action against widespread fraudulent claims of tax deductions and exemptions, according to an official statement by the Central Board of Direct Taxes (CBDT).

The crackdown spans across major Indian states including Maharashtra, Tamil Nadu, Delhi, Gujarat, Punjab, and Madhya Pradesh, and targets individuals and intermediaries involved in organized refund frauds.

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The Department’s internal analysis—leveraging financial data from third-party sources, ground-level inputs, and artificial intelligence tools—revealed systemic misuse of benefits under the Income-tax Act, 1961. 

Senior officials at the CBDT confirmed that the fraudulent schemes often involved intermediaries and professional ITR preparers submitting fictitious deductions, exemptions, and even fabricated TDS claims, all aimed at inflating tax refunds.

CBDT sources indicated rampant misuse under sections such as 10(13A), 80GGC, 80E, 80D, 80EE, 80EEB, 80G, 80GGA, and 80DDB—exemptions frequently claimed without adequate justification. 

Those involved include employees from multinational companies, PSUs, academic institutions, and government departments. The schemes, in many instances, lured taxpayers with promises of large refunds in exchange for a commission.

Despite a robust digital tax filing ecosystem, the Department noted significant hurdles in communication. Intermediaries were found creating temporary email IDs to file bulk returns, abandoning them after submission—resulting in ignored official notices.

Emphasizing voluntary compliance, the Department undertook a major outreach campaign over the past year, using SMS alerts, email nudges, and physical programs to encourage accurate tax filing. 

According to CBDT sources, over 40,000 taxpayers have since corrected their returns, leading to the withdrawal of fraudulent claims worth ₹1,045 crore.

The Department has now signaled its intent to pursue stringent action against the perpetrators, including penalties and criminal prosecution. 

The ongoing probe across 150 premises is expected to yield key evidence—such as digital trails and financial records—that will help dismantle networks behind the evasion schemes.

Taxpayers have been advised by the Income Tax Department to file accurate returns and remain cautious of unauthorized agents or consultants promising inflated refunds. Further investigations remain underway.