Scrutiny by IT Dept. for False Salaried Deductions

The Income Tax Department's scrutiny machinery has sharpened considerably in 2026. Risk-flagged returns are now identified through automated pattern detection across AIS, Form 26AS, employer Form 16 filings and SFT data. Salaried taxpayers who inflate HRA, donation, home-loan or 80C claims are increasingly being singled out for notices. This article explains how the scrutiny process works and how honest filers can stay safe.

Common Salaried-Deduction Red Flags

• HRA claims unsupported by genuine rent receipts or landlord PAN.
• Section 80C investments declared in ITR but absent from Form 16.
• Bogus donations to unverified institutions under Section 80G.
• Inflated medical and health-insurance claims under Section 80D.
• Education loan interest claims under Section 80E without lender confirmation.
• Home-loan interest claims for properties not actually owned by the taxpayer.

How the Department Identifies False Claims

The CBDT now relies on AI-assisted risk profiling. The system compares ITR-reported deductions with employer Form 16, AIS, third-party SFT data and PAN-linked bank flows. Where the ratio of declared deductions to gross salary diverges sharply from peer profiles, the case is flagged for scrutiny. Mismatches with the Annual Information Statement are the single biggest trigger.

Types of Scrutiny Notices

1. Section 143(1) intimation — automated adjustment for arithmetic and obvious mismatches.
2. Section 139(9) — defective return notice requiring rectification within 15 days.
3. Section 143(2) — selection for limited or complete scrutiny by an Assessing Officer.
4. Section 148 — reopening of assessment where income has escaped assessment.
5. Section 133(6) — call for information from banks, landlords or other third parties.

Consequences of False Deduction Claims

If a deduction is disallowed, the additional tax becomes payable along with interest under Sections 234A/B/C. The Assessing Officer can levy a penalty under Section 270A — 50% of the tax sought to be evaded for under-reporting, and up to 200% for misreporting (which now expressly covers wrong deduction claims). Prosecution under Section 276C is possible in serious cases of wilful evasion.

What Salaried Taxpayers Should Do

• Claim only deductions you can substantiate with bills, receipts and bank proof.
• Reconcile Section 80C, 80D and HRA with Form 16 — both numbers must agree.
• Use the new tax regime when it produces lower tax — it avoids deduction-related scrutiny altogether.
• Respond to notices within the timeline; never ignore an e-portal communication.
• Retain all proofs for at least seven years from the end of the relevant assessment year.

Faceless Assessment and the New Notice Workflow

The faceless assessment scheme now routes all routine scrutiny notices through the National Faceless Assessment Centre. Notices arrive on the e-filing portal and are answered electronically, with no physical interface. This makes timely response and complete documentation more important than ever — a missed deadline or weak submission lands in the file the AO sees, with no opportunity to explain in person.

Documentation You Should Retain

• Rent receipts and bank transfer evidence for HRA, plus landlord PAN where rent exceeds ₹1 lakh per year.
• Premium-paid receipts for life and health insurance.
• Donation receipts under Section 80G with the institution's 80G certificate number.
• Home-loan interest and principal certificates from the lender.
• Investment statements for ELSS, PPF, NPS and other 80C instruments.
• Education loan certificates for Section 80E claims.

Switching to the New Regime as a Safer Path

For many salaried taxpayers, the cleanest way to side-step deduction-driven scrutiny is to opt into the new tax regime. The regime offers a higher basic exemption, a Section 87A rebate up to ₹7 lakh and lower slab rates, while not allowing most deductions. Run a comparative tax calculation each year — if your total deductions under the old regime are modest, the new regime almost always yields lower tax. Filing under the new regime simplifies the return, reduces the documentation burden and avoids the most common scrutiny triggers in one move.

Where you still prefer the old regime because of substantial HRA and home-loan interest, build a defensible documentation pack — rent agreement, landlord PAN, bank-transfer evidence, loan certificate — and retain it for at least seven years from the end of the relevant assessment year.

Conclusion

The CBDT's data-driven scrutiny leaves very little room for inflated salaried deductions. The safest strategy is full reconciliation with AIS and Form 16, choosing the right regime, and retaining audit-grade documentation. Where a notice lands, respond promptly with professional help to limit penalty exposure.