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Advisory on Salaried Returns from Tax department

Until recently, salaried Income Tax Returns were a matter of least scrutiny and usually the processing was fast and notice free. Recently there has been a spate of arithmetical inaccuracy notices to the salaried and additional data or revised return is being requested. Following are the key issues to be taken care of before filing and the tax department has also issued detailed advisory on the below aspects:
The Central Processing Centre (CPC) of the I-T Dept in Bengaluru, which processes ITRs, has advised the salaried class not to fall prey to unscrupulous intermediaries, who help them in preparing false claims in a bid to get income tax benefits.

As per the CPC advisory, the I-T Dept is now using an extensive risk analysis system which can easily identify taxpayers who are non-compliant. And in cases of high risk, the I-T Dept may examine and verify the ITR details, after the processing of tax returns.

Any mismatch in your income and ITR details may arise not only because of not being tax-compliant, but also because of your ignorance and failure to report any income. Here are, therefore, some of the key points from the advisory:

1. Non-reporting of interest income from savings / fixed deposits account: These amounts can be directly mapped form the individual’s bank account statements and Form 26AS. Non-reporting / under reporting of these amounts are apparent cases of tax evasion and calls for further investigation. Further, at times taxes are also deducted on interest income and hence, the mismatch of income by non-reporting are easily identified

2. Fake bills submitted for HRA claims: One of the common fraudulent practice by employees are to claim fake HRA bills without adequate supportings, like lease agreement, etc. Further there are no adequate outflows from their bank account to the extent of rent payments claimed. Such practices and instances will be closely monitored and would now call for punishment under the provisions of the Income-Tax Act based on the recent advice.

3. Claiming false 80C deductions: It is very easy for employees to claim false 80C deductions like LIC bills, Mediclaim deductions etc. inflating the value of eligible fixed deposits without actual outflow of such investments. As payments made to this under this investment schemes are directly mapped to employees 26AS which are available with the tax department, such manipulations are evident and subject to severe prosecutions as employees are time and again indulging in such frauds despite of endless reiterations

4. Not considering income derived from all employers: People changing the job should ensure that they consider the income derived from all the employers while filing their tax return. The Tax Department already have this information based on TDS return filed by the employer and missing to report any such income can trigger inquiry against them.

5. Claiming false deduction under chapter VI-A: There are a few tax professionals who try to lure the taxpayers by promising high refund and charge them 10-25% of their refund amount. These professionals indulge in inflating or making wrong claims under various sections of Chapter VI-A like, Tax Saving Investment u/s 80C, Education loan interest – u/s 80E, Deduction form Mediclaim policies – u/s 80D, Rajiv Gandhi Equity Saving Scheme – u/s 80CCG, Donations – u/s 80G, 80GGA, 80GGC or other deductions relating to disability or medical treatment of certain illness – u/s 80DD, 80DDB, 80U.
With linkage of Aadhaar and PAN to all your bank account, loan account, demat account, and insurance policies, the I-T Department may be able to digitally verify many of your claims with the data available with them. In case of any discrepancy it can start investigation against the tax payer. Recently the Tax Department has notified Centralised Communication Scheme, 2018 as per which Centralised Communication Centre shall issue a notice to any person requiring him to furnish information or documents for the purpose of verification of information in his possession. Based on these 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 false claim, then you may have to face penalties and prosecution under the I-T Act.

6. Making false claims under Section 10: Many salaried tax payers while filing their tax return indulge in making false claims under section 10, viz. HRA, LTA, medical reimbursement, etc. Since last year the Tax Department has started comparing the data in the tax return with the income as reported in Form 16, Form 16A, Form 26AS.
The ITR Form released for AY 2018-19 also requires the employees to give a break-up of their salary. ITR-1 utility for AY 2018-19 has also been amended. It now requires the employees to report their taxable salary, allowances, perquisites, etc. separately and then they have to give the details break-up of all exempt allowances in the exempt income section. So, if the department finds any major discrepancy in the claims made in the return as compared to the details in the Form-16/Form 26AS, it can trigger a tax notice for such tax payers

7. Inflating claim of home loan interest: If you are among those who are inflating the claim of housing loan interest, be careful as the tax department may ask you to submit the proof online and if it is found insufficient, then the claim may get rejected and penal action can be taken against you.

8. Making false claims on capital gains: In the past a few taxpayers in a bid to save tax on their capital gains made false claims u/s 54, 54F, 54EC, etc. New the ITR Form requires to submit the details of the investment made under these sections. 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 a sever action 

(Shubham is a Chartered Accountant and MBA (Finance). She is on the forum of “Economic Times” experts on Taxation.   She specialises in Individual Taxation and Taxation of Freelancers & Small businesses. She can be reached on for answering your tax related questions.)
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