Claiming Fake Tax Deductions? CBDT's AI System May Already Know:

The Income Tax Department has found several cases where taxpayers wrongly claimed tax deductions and exemptions, the Finance Ministry told the Lok Sabha. These cases were identified using advanced technology, data analysis, verification exercises, surveys and searches carried out on individuals, businesses and intermediaries suspected of helping people make false claims.

In a written reply to the Lok Sabha on August 3, Minister of State for Finance Pankaj Chaudhary said the Central Board of Direct Taxes (CBDT) has strengthened its technology-driven monitoring system. It now analyses data from multiple sources, including Statements of Financial Transactions (SFT), TDS and TCS records, GST data, high-value bank transactions and property registration details, to identify possible tax evasion and incorrect claims.

The Finance Ministry said the CBDT's in-house data analytics system studies information received from different sources to quickly detect mismatches and suspicious transactions. The department also uses risk-based checks to examine income tax returns, audit reports and third-party information. These checks help identify under-reported income and excessive deduction or exemption claims, with risk parameters being updated regularly to improve accuracy.

To encourage voluntary compliance, the CBDT has launched the SAKSHAM NUDGE campaign. NUDGE, which stands for Non-intrusive Usage of Data to Guide and Enable, uses data analytics, behavioural insights and digital communication to alert taxpayers about discrepancies and encourage them to correct their tax returns without enforcement action.

According to the Finance Ministry, the SAKSHAM NUDGE campaign during FY 2024-25 and FY 2025-26 led to the filing of 1.25 crore updated or revised income tax returns. The campaign also resulted in additional tax payments of Rs 9,493.66 crore and generated a total revenue impact of Rs 12,121.91 crore. The department said awareness programmes across the country also helped taxpayers voluntarily file revised, belated or updated returns.

The Income Tax Department is also working closely with other enforcement agencies through the Regional Economic Intelligence Councils (REICs) and the Nodal Officer mechanism. Investigations have identified intermediaries, including tax return preparers and chartered accountants, who were allegedly helping taxpayers make fraudulent claims.

The department said it has taken action through e-verification, searches, surveys, reassessments, penalties and prosecution wherever required. With increased use of technology, data analytics and coordination with other agencies, the government aims to improve tax compliance while preventing misuse of tax benefits.