Manipulated again: I-T busts fresh fraud in political donation tax deduction claims

In its continuing action against fraudulent tax deductions, the Income Tax (I-T) Department has found fresh cases of manipulation even after taxpayers were given the opportunity to correct their returns. According to officials, a number of individuals who had previously claimed deductions for political donations under Section 80GGC of the Income Tax Act have simply withdrawn those claims and shifted the same amounts to other deduction categories such as home loan interest and education loans.

Earlier, the department had identified approximately 200 individuals whose high-value claims were suspected of being linked to tax evasion totalling ₹35 crore. Emails were sent to these individuals informing them that, during the verification of their income tax returns for the assessment years 2022–23 and 2023–24, deductions under Section 80GGC were found to be suspicious. Many of these claims, some running into lakhs of rupees, mentioned donations to both registered political parties and registered unrecognised political parties.

After the Mumbai zone, the Telangana-Karnataka zone recorded the second-highest value of declared deductions under Section 80GGC. Of the ₹7,124 crore in deductions declared across the country, ₹1,641 crore came from this region. Within this zone, 15,223 employees in Telangana were suspected of having falsely claimed deductions for political donations.

Despite the department offering a voluntary compliance window that encouraged taxpayers to withdraw incorrect claims and file updated returns within seven days, many individuals failed to respond to the notices. Among those who did respond, officials discovered that several had manipulated their updated returns.

Meanwhile, many taxpayers who claimed deductions under Section 80GGC of the Income Tax Act, 1961, have received notices from the I-T Department. In response, the department has introduced a new facility on its portal. This feature provides guidance for taxpayers who have received notices under Section 158BC of the Income Tax Act, 1961, on how to respond.

Section 80GGC of the Income Tax Act, 1961, allows individual taxpayers to claim deductions for contributions made to political parties or electoral trusts. These deductions are intended to promote transparency in political funding and are subject to specific eligibility rules, documentation requirements, and deduction limits.

However, due to the increasing number of false claims being made under this provision, the tax department has initiated fresh measures to tackle the misuse of the deduction.

Earlier this week, on Monday, the Income Tax Department launched large-scale search operations across the country targeting individuals and entities accused of facilitating fake tax deductions. Officials raided over 200 premises linked to people who were allegedly helping taxpayers to falsely claim deductions under various heads, including political donations, tuition fees, and medical expenses.

A major focus of these operations was on deductions claimed under Section 80GGC, which allows contributions to registered political parties to be deducted from taxable income.