The Income Tax Department has intensified its action against taxpayers and intermediaries involved in claiming bogus donation tax refunds by misusing deductions available under the Income Tax Act. Recent investigations have uncovered a well-organised nexus of intermediaries, fake political parties, and dubious charitable institutions that helped taxpayers illegally reduce their tax liability and claim fraudulent refunds.
This crackdown highlights the government’s increasing reliance on data analytics, artificial intelligence, and international financial intelligence to detect tax evasion at an early stage.
How Fake Donations Were Used to Claim Bogus Tax Refunds
According to the Income Tax Department, investigations revealed that intermediaries operated pan-India networks that filed income tax returns on behalf of taxpayers for a commission. These agents inflated or fabricated deductions under various provisions of the Income Tax Act, resulting in bogus donation tax refunds.
A large number of these fraudulent claims were linked to donations made to Registered Unrecognised Political Parties (RUPPs) and certain charitable institutions. Many of these entities existed only on paper and were not engaged in any genuine political or charitable activities.
In a social media post on X (formerly Twitter), the Income Tax Department stated that it observed a huge volume of false claims related to donations made to RUPPs and charitable institutions. These donations were used to artificially reduce tax obligations and generate fake refunds.
Role of RUPPs and Charitable Trusts in the Scam
Evidence gathered during enforcement actions revealed that several RUPPs were non-filers, non-operational, and registered at fictitious or shared addresses. Despite this, they issued donation receipts that taxpayers used to claim deductions under the Income Tax Act.
The Department found that some of these entities were used as conduits for routing unaccounted money, including cross-border remittances. In certain cases, companies also claimed bogus Corporate Social Responsibility (CSR) expenditure through these trusts.
Follow-up searches conducted on select RUPPs and charitable trusts resulted in the seizure of incriminating evidence, strengthening the Department’s case against those involved in bogus donation tax refunds.
CBDT Flags High-Risk Claims Under Sections 80G and 80GGC
The Central Board of Direct Taxes (CBDT) has further strengthened its data-driven monitoring framework to identify suspicious claims at an early stage. One of the key risk patterns flagged relates to deductions claimed under Section 80G (donations to charitable institutions) and Section 80GGC (donations to political parties).
Data analysis revealed that several taxpayers either donated to suspicious entities or failed to provide adequate documentation to establish the genuineness of the recipient organisations. These patterns triggered automated risk alerts within the Department’s systems.
As a result, many taxpayers have voluntarily revised their returns for the current Assessment Year (AY) 2025–26 and filed updated returns for earlier years, withdrawing incorrect claims related to bogus donation tax refunds.
How the Income Tax Department Detects Such Offences
Tax experts say the Department now uses advanced technology to identify tax fraud. Tax Advisors, explains that the Department deploys sophisticated data analytics and AI-based risk profiling tools to detect abnormal deduction patterns and intermediary-driven claims.
These claims are cross-verified using multiple third-party data sources, including banking records, trust filings, AIS and Form 26AS data, financial transaction trails, and PAN-linked databases. Where discrepancies are identified, the Department conducts searches and surveys under Sections 132 and 133A of the Income Tax Act.
Such enforcement actions often uncover bogus donation tax refunds, routed funds, hawala transactions, and fictitious CSR expenditure.
Nudge Campaign: A Taxpayer-Friendly Opportunity to Correct Errors
As part of a taxpayer-friendly approach, the Income Tax Department has launched a targeted “Nudge” campaign. Under this initiative, identified taxpayers are given an opportunity to review and correct their returns before coercive action is initiated.
From December 12, 2025, SMS and email advisories are being sent to taxpayers who may have made incorrect claims. These messages urge them to revise their returns if they have claimed bogus donation tax refunds or other ineligible deductions.
The Department has advised taxpayers to ensure that their mobile numbers and email IDs are correctly updated on the income tax portal so they do not miss these important communications.
Why Taxpayers Should Take This Seriously
Claiming bogus donation tax refunds false deductions can result in serious consequences, including penalty, interest, reassessment, and prosecution in extreme cases. With the Department’s enhanced monitoring systems, the chances of such claims going unnoticed are extremely low.
Revising returns voluntarily not only helps taxpayers avoid harsh penalties but also demonstrates compliance and good faith.
The Income Tax Department’s crackdown on bogus donation tax refunds sends a strong message that misuse of deductions through fake political parties and charities will not be tolerated.
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