The Income Tax Department is stepping up reviews of common deductions like Section 80C, HRA, and health insurance premiums. Claims that do not align with data in the Annual Information Statement or Form 26AS are increasingly triggering scrutiny notices. Taxpayers must ensure all claims are supported by accurate payment proofs and bank certificates to avoid potential tax disallowance.
What Happened
The Income Tax Department has increased its focus on verifying tax deductions claimed by individuals in their tax filings. Authorities are actively cross-checking claims—such as those under Section 80C, HRA, and health insurance premiums—against digital footprints provided by the Annual Information Statement (AIS), Taxpayer Information Summary (TIS), and Form 26AS. When a taxpayer's claimed figures do not match these official records or lack proper documentation, they are increasingly receiving notices seeking clarification or proof of payment. This process applies even after an initial return has been processed, as the department retains the legal authority to review claims later.
Common Deduction Hurdles
Section 80C remains a primary area for scrutiny due to the high volume of claims and common errors. Deductions for investments like PPF, ELSS, insurance premiums, and home loan principal repayments are frequently questioned if the claimed amount does not match actual payments made within the financial year. Similarly, House Rent Allowance (HRA) claims are under closer watch. Taxpayers must ensure they have valid rental agreements, rent receipts, and proof of payment to substantiate their claims. In cases where taxpayers claim Section 80GG for rent, strict adherence to eligibility and documentation is required.
Why Mismatches Occur
Many taxpayers face challenges because the amounts entered in their tax returns differ from bank certificates or employer-provided filings. For instance, deductions under Section 24(b) for home loan interest often lead to queries if the interest certificate from the lender is not readily available or if the figures were entered manually and incorrectly. A similar situation applies to health insurance premiums under Section 80D. Premiums must be paid through verifiable, non-cash methods and supported by official policy or payment receipts. When claims for parents are included or when estimated renewal amounts are used instead of actual paid figures, the likelihood of a notice increases.
Importance of Digital Compliance
The integration of data from banks, employers, and financial institutions into the AIS and TIS platforms has made it easier for the tax department to spot discrepancies instantly. This means that claiming a deduction without having the underlying paperwork—such as donation certificates for Section 80G or bank certificates for education loan interest—is a significant risk. Any divergence from these automated data sources is likely to flag a return for manual review, forcing taxpayers to produce evidence to prevent their claims from being disallowed.
What Taxpayers Should Track
To minimize the risk of scrutiny, taxpayers should ensure that all investment and expense claims are fully documented with receipts and certificates. Before filing, it is important to reconcile all claimed amounts against the data displayed in the AIS and Form 26AS available on the Income Tax e-filing portal. If discrepancies appear, they should be addressed or clarified before the final submission. Keeping organized records of all payment proofs for at least several years is essential, as the department can issue verification requests for past filings.