Paying income tax is the responsibility of salaried taxpayers to avoid the IT Department’s follow-up. But many taxpayers find ways to hide their original taxable income and pay fewer taxes.
If we take a close look at the figure, it is not that much higher than their earnings, but the problem is that they consider their hard-earned money to be taken by the government in the form of income tax. However, they do not understand that the government needs funds too in order to maintain the social and economic structure, and the government has expenses as well.
Moving forward, are you one of the taxpayers who conceals their income? Then, this post is certainly going to help you a lot. It will show you common errors to avoid and not become a victim of smart-minded people who advise you to save tax and take their fees in return.
The IT dept has informed salaried-class taxpayers to avoid illegal ways of filing income tax returns (ITRs). It is strictly mentioned that such violators will not only be taken to court, but also their employers will be taken into consideration for guilt.
A PTI report mentions that the Central Processing Centre (CPC) of the I-T Dept in Bangalore also suggested not falling into an illegal tax net, trapped by false people to obtain an income tax advantage. Under the Income Tax Act, all practices such as not reporting full details of income or showing inflated exemptions or deductions to save tax are punishable offences.
As mentioned by the CPC advisory, the tax department will use an extensive risk analysis system to track those non-compliant and go for an ITR details check while examining high-risk cases.
So, now being tax compliant as well as filing the true IT return is important. Former Akhil Chandna, Director, Grant Thornton India LLP, said, “After the Income Tax Department’s cautionary advisory issued recently, all salaried taxpayers will have to pay additional attention and ensure that there is no under-reporting of income or excessive/false claims of deductions from their salary income.”
Read Also: Important Steps for Beginners to Filing Income Tax Return
Making mistakes purposely is another thing, and a mismatch in arrival is another. But it can be a matter of concern if some kind of mismatch occurs in filing returns. So, here are the most common mistakes made by salaried taxpayers, and it is advisable to consider these to avoid any kind of delay and mismatch.
Bogus Bills For HRA Claims
It is the practice of employees to submit fake bills for HRA Claims without a relevant document in support. They just mention the lease agreement and rent outflow, but there is no such kind of transaction from their account. These sorts of actions are punishable under the Income Tax Act.
Tax Escape On Interest From Bank Accounts
The amount of tax mismatch can be directly gauged from the person’s account and Form 26AS. The Income Tax Department has access to information from multiple reporting sources, including Form 26AS, the AIS and the TIS, which helps it identify mismatches between the information reported by taxpayers and the data available with the department.
Head of Tax Research, H&R Block India, says, “Non-reporting / under-reporting of these amounts is an apparent case of tax evasion and calls for further investigation. Further, at times, taxes are also deducted from interest income, and hence, the mismatch of income by non-reporting is easily identified.”
Show Income From All Employers
The Tax Department has details about the income of all employers, so whether you switch jobs or earn part-time from two or more employers, you are required to pay the tax accordingly. The tax department has information regarding these based on the TDS return filed, and any mismatch can lead to an inquiry against you.
Misuse Of Chapter VI-A Deductions
Some professionals make the taxpayers pay high taxes and, in return, charge 10-25% of the refund amount. These professionals generally make false claims such as Education loan interest – u/s 80E, Tax Saving Investment u/s 80C, Deduction from Mediclaim policies – u/s 80D, Donations – u/s 80G, 80GGA, 80GGC, medical treatment of certain illnesses – u/s 80DD, 80DDB, 80U, and deductions relating to disability. But with the attachment of Aadhaar and PAN now, the tax department can track the truth.
Chandak says, “In case of any discrepancy, it can start an investigation against the taxpayer. Recently, the Tax Department has notified the Centralised Communication Scheme, 2018, as per which the Centralised Communication Centre shall issue a notice to any person requiring them to furnish information or documents for the purpose of verification of information in their possession. Based on this inquiry conducted, the Centralised Communication Centre may forward the outcome of such inquiry to the Assessing Officer for further action, and if the AO is convinced that you have made a false claim, then you may have to face penalties and prosecution under the I-T Act.”
Misuse of the 80C Form
Some assessees make incorrect tax deduction claims under different conditions, such as Section 80C (LIC, PPF, ELSS, etc.) and Section 80D (Medical/Health Insurance Premiums) without having actual supporting records. Chandna says, “As payments made under these investment schemes are directly mapped to employees’ Form 26AS, which are available with the tax department, such manipulations are evident and subject to severe prosecution as employees are time and again indulging in such frauds despite endless reiterations.”
From A.Y. 2025-26, the Income Tax Department requires details in ITR forms regarding such investments to avoid manipulations.
Fake Claim Under Section 10
Many salaried taxpayers make fake claims under Section 10 regarding LTA, HRA, and medical reimbursement. The Income Tax Department compares the information reported in the ITR with data received from various sources, including Form 16, Form 26AS, the Annual Information Statement (AIS), the Taxpayer Information Summary (TIS), employers, banks, and other reporting entities.
Any inconsistency may lead to further verification or scrutiny by the department. From A.Y. 2025-26, HRA is allowed based on the Limits given under the Income Tax Act.
Wrong Claims On Capital Gains
Taxpayers make wrong claims using u/s 54, 54F, 54EC on capital gains to save tax. Now, the ITR asks for the details of the investment as well to check the truth. Chandak informs, “Further, with the linkage of Aadhaar and PAN with property transactions and the financial account, it would be easy for the tax department to verify your claims electronically, and if those are found incorrect, it can result in severe action against you.”
Escalating Home Loan Interest
For the people who are planning to escalate home loan interest in order to fool the government, it is advisable not to do this, as your claims can be rejected in case of insufficient documentation, and strict action could be taken against you.
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