Why Fake Tax Deductions in 2025 Could Cost You 200% penalty

Abhinav Pradeep
Jul 1
3 min read

Updated: Jul 15

Every year, around ITR filing season, I get these questions again and again, especially from salaried individuals.

And most of them have one thing in common: they’re trying to get a bigger refund.

Sometimes they ask casually.

Sometimes nervously.

Sometimes even desperately.

“Hey, my colleague said he shows ₹2L under 80C every year even though he hasn’t actually invested much. Should I just copy what he did?”

“I didn’t buy any medical policy this year, but can I still enter something under 80D? I really need the refund.”

“I got HRA but didn’t actually pay rent. Can I just show it anyway?”

It always starts small. A casual coffee break. A chat in the office WhatsApp group. Someone says,

“Hey, just show this… the Income Tax Department never checks these small things.”

They ask with hope.

They ask with confidence.

They ask, often, begging for a refund that feels “justified” in their mind.

But here’s the thing no one is telling them:

In 2025, the Income Tax Department is smarter, faster, and watching everything.

The System Has Got Smarter, And Stricter

What many don’t realize is that the Income Tax Department in 2025 is not the same as before. It’s no longer a sleepy system that ignores small claims or runs on random checks.

The I-T Department now has access to a real-time data engine connected to your PAN:

Your salary, TDS, investments, insurance, even donations, everything is pulled directly from banks, employers, and registrars.
They’re matching your ITR with Form 26AS, AIS, and even GST filings, if you have them.
In some cases, they're asking for documentary proof right during the e-filing process.

You might have gotten away earlier, but this year, you won’t.

Official Warning from the Income Tax Department

Even the Income Tax Department’s official X account recently issued a stern alert about this crackdown:

This is not a rumor or casual warning, it's a clear and public announcement from the authorities themselves. If you’re thinking, “Just a small fake claim won’t matter”, think again.

What If You Still Try?

If you knowingly enter fake deductions or inflated claims, here’s what can happen:

Offense	Consequence
False deduction or inflated claim	200% penalty on the tax evaded (Section 270A)
Underreporting income	50% penalty (even if unintentional)
Willful tax evasion	Prosecution under Section 276C (includes imprisonment)
Multiple offenses	Future returns flagged, refunds delayed

Even Tax Agents Are Under the Scanner

It’s not just individual taxpayers, the Income Tax Department is now actively targeting tax agents and consultants who help clients file returns with false deductions or inflated claims.

So if someone promises you a “guaranteed refund” or says “don’t worry, I’ll handle the numbers” be careful. Both the filer and the agent will be held responsible in case of fake claims.

Real Talk: Is It Worth It?

Let’s say you fake a deduction, maybe for insurance, a donation, or an investment and manage to save ₹20,000 in tax.

Now imagine getting caught.

The penalty alone could be ₹40,000. Add interest. Add the stress of replying to notices.

Add the fear of scrutiny on your future returns, every year.

All that…Just to match what your coworker claimed in a WhatsApp group?

Is that refund really worth the risk?

Here's What You Should Do Instead:

Claim only what’s genuine
- No bills = no deduction.
Cross-check your Form 16 and Form 26AS
- Don’t guess. Match.
Keep documents for every deduction you claim
- Even if the portal doesn’t ask today, they might later.
Don’t rush your filing.
- Filing early gives you time to correct errors, upload documents, or respond to notices.