Income Tax Department Tightens Grip on Refunds Amid Fake Donation Surge; Check Details

The Income Tax Department is delaying refunds due to intensified scrutiny of returns. This follows the discovery of widespread fake donation claims, often involving unrecognized political parties and charities, used to illegally reduce tax liability.

If your income tax refund is taking longer than expected this year, you're not alone. The Income Tax Department has intensified scrutiny of refund claims after uncovering widespread misuse of donation-related tax deductions, prompting stricter verification before refunds are cleared.

Officials say several taxpayers claimed inflated or completely fake donations to reduce their tax burden and secure higher refunds.

How Fake Donations Became a Shortcut to Refunds

Investigations by tax authorities revealed that many false claims were routed through intermediaries who helped taxpayers file returns on a commission basis. These agents allegedly added bogus deductions, especially donations, to artificially lower tax liability.

A large number of such claims were linked to donations made to Registered Unrecognised Political Parties (RUPPs) and certain charitable institutions. According to the Income Tax Department, many of these entities were either inactive, failed to file regular returns, or were not involved in genuine political or charitable work.

"It was observed that a huge amount of bogus claims have been made on account of donation to Registered Unrecognised Political Parties or charitable institutions, leading to reduced tax obligations and fake refunds," the department said in a post on X.

What Investigators Found on the Ground

Searches and surveys carried out at some political parties and trusts uncovered evidence suggesting these organisations were being used as conduits to route unaccounted money. In several cases, fake donation receipts were issued to individuals, while some companies were found to have made false CSR-related claims.

Tax officials said these entities existed largely on paper and were being misused to legitimise questionable financial transactions.

CBDT Flags High-Risk Donation Deductions

The Central Board of Direct Taxes (CBDT) has identified deductions claimed under Sections 80G and 80GGC of the Income Tax Act, which cover donations to charities and political parties, as high-risk categories.

Using enhanced data analytics, the department found that many taxpayers either donated to suspicious organisations or failed to provide proper proof of genuine donations. Following this, a growing number of taxpayers have voluntarily revised their returns for the current assessment year 2025–26. Some have also filed updated returns for previous years, withdrawing incorrect claims.

How the Tax Department Spots Bogus Claims

Technology now plays a central role in catching fake deductions. Tax experts say the department uses advanced data analytics and AI-based risk profiling to identify unusual patterns.

Sandeep Bhalla, Partner at Dhruva Advisors, told The Economic Times that refund claims are cross-checked against banking data, trust filings, Annual Information Statements (AIS), Form 26AS, transaction trails and PAN-linked databases.

"When discrepancies are detected, follow-up actions such as searches and surveys are conducted to gather evidence of fake donation receipts and routed funds," he said.

What Is the 'Nudge' Campaign?

Along with enforcement, the Income Tax Department has launched a "Nudge" campaign to encourage voluntary compliance. Under this initiative, taxpayers flagged as high-risk receive SMS and email alerts asking them to review and correct their returns if incorrect claims were made.

These advisories have been sent from December 12, 2025. Officials have urged taxpayers to ensure their contact details are updated so they do not miss official communication.