Salaried Employees In Armed Forces, Police, PSUs, Schools MNCs Caught In Massive Tax Fraud | Profit Exclusive

The Central Board of Direct Taxes has uncovered large-scale tax fraud involving salaried individuals from multiple sectors, including the Central Armed Police Forces (CAPF), Public Sector Undertakings (PSUs), state governments, educational institutions, multinational corporations (MNCs), and other public and private organisations. 

On July 14, the Investigation Directorates of the CBDT conducted a major verification drive targeting intermediaries—primarily Income Tax Practitioners (ITPs) and Chartered Accountants (CAs)—who were suspected of facilitating fraudulent claims in Income Tax Returns (ITRs). Many of these intermediaries admitted under oath to having filed returns with false or unsupported deductions and exempt allowances in exchange for commissions, according to an internal tax department Aug 6 letter, assessed by NDTV Profit. 

The verification exercise revealed that a significant number of salaried taxpayers had availed bogus deductions and exemptions, often without valid supporting documentation. This malpractice, facilitated by intermediaries, was found to be prevalent among employees of armed forces, state police departments, PSUs, local authorities, banks, schools, colleges, and even reputed MNCs.

Such claims included fraudulent entries under various sections of the Income Tax Act related to deductions for investments, housing loan interest, medical expenses, and other exempt allowances.

The CBDT has issued urgent instructions to tax authorities and departments to take up the matter with the heads of affected organisations. The goal is to sensitise employees and prevent the recurrence of such fraudulent activities.

Employees are to be made aware of the legal and administrative consequences of submitting false claims in their ITRs, which may include penalties, prosecution, refund disallowance, and other disciplinary measures.

The CBDT has specifically directed Drawing and Disbursing Officers (DDOs) of these departments and organisations to scrutinise the tax-related claims made by employees at the time of TDS (Tax Deducted at Source), maintain documentary evidence of deductions and exemptions claimed and also ensure compliance with income tax provisions in all salary-related reporting, the letter underlined.

The directive emphasises that taxpayers still have an opportunity to revise or update their filed returns to withdraw false claims, in accordance with legal provisions. This corrective step can help them avoid punitive action by the Income Tax Department.

Both tax departments and organisational heads are required to submit an Action Taken Report to the CBDT Board by Sept. 15, 2025, outlining the measures taken to address the issue and ensure compliance, the letter noted.