The article by Neeraj Agarwala discusses the scrutiny faced by tax deductions under Chapter VI-A due to allegations of inflated claims and misuse. It highlights the importance of proportional claims, stating that deductions exceeding one-third of a taxpayer’s income can trigger automated checks by the income tax department. Taxpayers are urged to verify the legitimacy of institutions for donations claimed under sections 80G and 80GGC. Enhanced reporting requirements for the AY 2025-26 demand detailed disclosures for deductions, reflecting the department’s push for transparency. Additionally, it emphasizes the need for a clear payment trail through traceable bank channels to support claims. Salaried taxpayers are cautioned against bypassing employer disclosures to avoid increased scrutiny.
The tax deductions under Chapter VI-A, which includes investments, health insurance premium and donations, have increasingly come under the income tax department’s scanner due to allegations of inflated claims, fictitious documentation, and misuse.
Proportionate claims
Deductions should be reasonable in relation to your disposable income. If someone with Rs 8 lakh taxable income claims deductions upwards of Rs 3 lakh (i.e., more than one-third of income), it may raise red flags with the department’s automated systems. Disproportionate claims are a common trigger for scrutiny.
Verifying exempt institutions
Taxpayers rely on intermediaries—such as banks, insurers, or agents—when making tax-saving investments. While they provide accurate information for deductions, extra caution is warranted when claiming donations under sections 80G or 80GGC. Verify that the institution is approved and registered with the Income Tax Department. A list of eligible exempted institutions is available under the “Tax Utilities” tab of the income tax departments website.
Enhanced reporting requirements
For AY 2025-26, the Income Tax Return (ITR) forms have introduced more granular reporting requirements. For example, claims under 80C and 80E now require disclosure of investment details along with document reference numbers. These changes reflect the department’s push for increased transparency.
Payment trail is crucial
In scrutiny cases, providing a receipt for a donation or investment may not suffice. The I-T department will check your bank statements. Therefore, all eligible payments should be routed through traceable bank channels to establish an auditable trail.
Salaried taxpayers who bypass their employer’s Form 16 disclosures and directly claim deductions are at higher risk of being questioned. Claims made to little-known institutions or newly registered political parties are often cross-checked.
The writer is partner, Nangia & Company. Inputs from Neetu Brahma.