Filing ITR in Old Tax Regime? Misreporting income for higher refunds can cost you 200% more in taxes

Misreporting income to claim higher tax refunds can result in severe penalties, including a fine amounting to 200% of the tax on the misreported income and potential prosecution, according to the Income Tax Department.

While the new regime has removed most of the tax deductions and exemptions available in the old regime, the taxmen have noticed that many taxpayers are making wrongful refund claims in the old regime.

"Wrongful refund claims are noticed among certain employees who have opted for the old tax regime," the tax department said in an awareness pamphlet shared with the public recently.

Such wrongful claims are being made by several salaried employees.

As per tax rules, employers deduct TDS under Section 192 of the Income Tax Act from salary. In the old tax regime, the employer is required to obtain the details of the deduction/exemption proposed to be claimed by an employee in Form 12BB along with documentary evidences. The employer then verifies the details and estimates the tax liability to deduct TDS accordingly.

However, the income tax department has noticed that many employees are filing wrongful claims for deductions.

"In certain instances, it is observed that subsequent to the deduction of TDS by the employers, the employees either on their own volition or allured by others are filing their Income Tax Return with wrongful claim of deduction/exemption without any requisite documentary evidence whatsoever. As a result, total income and consequent tax liability are being reduced and the TDS deducted by the employer is being wrongfully claimed as refund," the tax department said.

The tax department is using information technology tools like AI/ML and Data analytics to identify wrongful claims in ITR.

Consequences of wrongful refund claims

There are several consequences of making wrong refund claims:

• Such cases may be selected for detailed income tax scrutiny

• In the absence of documentary evidence, the tax department can be disallowed during the income tax assessment/reassessment proceedings. Further, tax demand may be raised along with applicable interest.

• A penalty under section 270A for misreporting of income @ 200% of the tax on misreported income, may be levied.

• The tax department may file a criminal case of tax evasion in appropriate cases. If the tax on under-reported income is over ₹25 lakh then there can be a punishment of up to 6 months to 7 years and file.

• In other cases, there can be rigorous imprisonment for up to 3 to 2 years.

What to do?

Salaried employees should file true, correct, and complete income tax returns to avoid any hassles later.

After deduction of TDS by the employer, the employee should not claim a refund of such TDS by making a wrongful claim of deduction exemption. In case of rightful claims, employees should maintain proper documentary evidence.