Income Tax Department Targets Fraudulent Refund Claims Linked to Fake Donations

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Synopsis: The Income Tax Department has intensified action against taxpayers claiming bogus donations to political parties and charities to secure illegal refunds. Using data analytics, the CBDT has launched a nationwide “nudge” campaign, warning taxpayers to correct false claims under Sections 80G and 80GGC or face penalties and prosecution.

Income Tax Dept Cracks Down on Fake Donation Refund Claims

The Income Tax Department has stepped up enforcement against individuals who claimed illegitimate tax refunds by reporting fake donations to political parties and charitable organisations. The action follows a data-driven investigation by the Central Board of Direct Taxes (CBDT), which uncovered organised networks of intermediaries facilitating such fraudulent claims.

The crackdown targets misuse of tax deduction provisions under Sections 80G and 80GGC of the Income-tax Act, 1961 — provisions meant to encourage genuine philanthropy and political contributions.

How the Fake Donation Scam Works

Under Sections 80G and 80GGC, taxpayers are allowed deductions for donations made to eligible charities, political parties, or electoral trusts. However, investigations revealed that:

• Taxpayers, aided by professional intermediaries, claimed donations to inactive or bogus entities
• Fake receipts and manipulated documentation were used
• The sole objective was to reduce taxable income and obtain refunds

In many cases, the claimed donations were never actually made, resulting in wrongful refunds from the exchequer.

CBDT Flags Suspicious Claims, Launches “Nudge” Campaign

To recover revenue and encourage voluntary compliance, the CBDT has launched a nationwide “Nudge” review campaign. Under this initiative:

• Taxpayers identified through data analytics are being sent SMS and email alerts
• They are asked to review and correct their returns
• A deadline is provided to revise returns and avoid penalties

Taxpayers receiving these alerts are advised to verify:

• The authenticity of the charity or political party
• Validity of Form 10BD / 10BE
• Whether the donee entity has valid recognition

If discrepancies are found, taxpayers should file a revised return under Section 139(8A) and withdraw incorrect claims.

Intermediaries Under Scanner

The department is also closely examining intermediary networks that prepare and file returns on behalf of taxpayers. Authorities have detected patterns involving:

• Repeated refund claims using the same entities
• Registered Unrecognised Political Parties (RUPPs) with no real activity
• Fabricated donation receipts issued at scale

Where deliberate fraud is established, penalties and prosecution may follow.

Penalties, Risks, and Compliance Measures

Tax experts warn that false claims under Sections 80G and 80GGC can attract serious consequences, including:

• Recovery of wrongly issued refunds
• Penalties up to 200% of the tax evaded
• Prosecution under the Income-tax Act in severe cases

To remain compliant, taxpayers should:

• Ensure donations are made only to valid, recognised entities
• Maintain proper payment proofs and acknowledgements
• Cross-check statutory disclosures and official registries

The current action builds on earlier nationwide searches conducted at over 200 locations, where authorities uncovered extensive use of fake receipts and manipulated records.