The Income Tax Department has intensified enforcement against taxpayers claiming illegitimate refunds by reporting bogus donations to political parties and charitable organisations, uncovering a network of intermediaries facilitating the scheme. The crackdown is part of a data-led effort by the Central Board of Direct Taxes (CBDT) to curb misuse of tax provisions that allow deductions for donations under Sections 80G and 80GGC of the Income-tax Act, 1961.
Under Sections 80G and 80GGC, donors can claim deductions for contributions to eligible charities and political parties or electoral trusts. However, investigators found that some taxpayers, aided by professional intermediaries, filed returns asserting donations to inactive or bogus entities solely to reduce taxable income and secure refunds that the donors were not legitimately entitled to receive.
CBDT Flags Suspicious Claims, Launches “Nudge” Review Campaign
The CBDT has flagged suspicious claims and initiated a “Nudge” campaign, sending notices via SMS and email to taxpayers identified from digital data analysis. These notices urge individuals to review and correct their income tax returns if they have mistakenly or fraudulently claimed deductions for fake donations. The friendly notice gives taxpayers a deadline to make corrections and avoid penalties, facilitating recovery of revenue otherwise lost to fraudulent refund claims.
This follow-up action reflects a broader enforcement posture by the tax authority in the current assessment year. Taxpayers who receive such alerts are advised to verify the authenticity of the donee political party or charity, cross-check Form-10BD or 10BE documentation, and submit revised returns under Section 139(8A) where necessary to withdraw incorrect claims.
The crackdown also signals closer scrutiny of intermediary networks that prepare and file tax returns on behalf of individuals and entities. Authorities are analyzing patterns of repeated refunds claimed on non-existent or inactive entities — including registered unrecognised political parties (RUPPs) with no genuine activity — and are prepared to impose penalties or pursue prosecution where intentional fraud is established.
Penalties, Risks, and Compliance Measures
Tax experts warn that improper or fraudulent claims under 80G and 80GGC can expose taxpayers to significant compliance risk. Authorities may claw back refunds, levy penalties of up to 200 percent of the tax sought to be evaded, and — in egregious cases — initiate prosecution under the Income-tax Act.
To avoid punitive action, the department has emphasised that taxpayers must ensure donee entities have valid recognition and maintain proper records of actual donations. Verification of eligibility via statutory documentation and official registries can help prevent inadvertent filing errors that might otherwise trigger enforcement actions.
This latest action builds on earlier investigations this year, when the department conducted raids at more than 200 locations nationwide in connection with bogus deductions, uncovering extensive use of fake receipts and manipulated documentation for political donation claims.
The Income Tax Department’s evolving approach — blending data analysis, digital outreach, and robust enforcement — illustrates a sustained effort to protect revenue integrity and deter exploitation of tax benefits designed to encourage legitimate philanthropy and political funding.
