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The Income Tax Department has intensified its scrutiny of fraudulent deduction claims by leveraging the Annual Information Statement (AIS) to monitor the income and expenditure patterns of salaried taxpayers. The integration of artificial intelligence (AI) algorithms to identify anomalous transactions has further strengthened this initiative. Consequently, salaried individuals are exercising heightened diligence when preparing their income tax returns for the financial year 2024–25.
Enforcement drive on fraudulent deduction claims
Vivek Jain, partner at Tax Connect Advisory, explained that the Income Tax Department historically paid limited attention to salaried taxpayers. However, recent years have witnessed a marked shift, with numerous reports indicating aggressive enforcement actions targeting fraudulent deduction claims. Consequently, taxpayers are now validating every deduction with supporting documentation to avoid penalties, leaving no margin for documentation deficiencies.
Expanded disclosure requirements in income tax returns
Chartered accountant Akhil Pachauri noted that previous years witnessed inflated claims of charitable donations, particularly those linked to political party contributions. This assessment year, however, a notable surge in reported donation figures may reflect heightened concern over imminent income tax raids and scrutiny. In tandem, the Income Tax Department has revised the income tax return (ITR) forms to mandate granular disclosures for claims under sections 80C, 80D, and for the house rent allowance, necessitating taxpayers to furnish exhaustive evidence before a deduction may be allowed.
Taxpayer Preference for the Simplified Income Tax Regime Rose Sharply
A growing number of taxpayers have adopted the simplified income tax regime, seeking to eliminate the administrative burden of claiming multiple deductions. While the new approach relinquishes almost all traditional deductions, its structural simplicity—including a wider range of taxable income brackets—results in a lower overall tax burden for most assessable income bands. The government, keen to expand the reform’s adoption, continues to encourage a wider base of taxpayers to migrate. Consequently, a significant number of salaried taxpayers who initially opted for the traditional regime during the April 2024 selection window have reverted to the new structure when filing returns.
In FY2024, 70 Percent of Tax Filers Chose the New Regime
During the financial year 2023-24, over 70 percent of all income tax returns were filed under the new regime, according to provisional data. Analysts project that the adoption rate will advance further through the current fiscal year. Numerous chartered accountants have noted that salaried taxpayers retain the option to switch the chosen regime each year. Many are now exercising this latitude to select the new regime at the return-filing stage. In cases where excess TDS has been withheld, these taxpayers realize a refund—an additional incentive for the tactical selection of the simplified structure.
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