Every year as the ITR filing deadline approaches, a section of salaried taxpayers makes a decision that can have serious consequences. They submit fake rent receipts, claim deductions they are not entitled to, or misreport income to reduce their tax liability. With the ITR-1 and ITR-2 deadline of July 31, 2026 approaching, this is the right time to understand exactly what the Income Tax Department can see, what it is now doing with that data, and what the consequences of false claims look like in practice.
The answer, in short, is that the Department has deployed AI-based systems to verify claims, and the risk of getting caught has increased significantly.
Before looking at how the Department catches false claims, it helps to understand the common patterns of misreporting that trigger scrutiny.
This is the most widespread misuse. Taxpayers submit fabricated rent receipts or show rent payments to parents or relatives without any actual money changing hands. The HRA exemption under the old tax regime can be substantial for a salaried employee in a metro city, which makes this an attractive but illegal shortcut.
Taxpayers claim deductions for donations made to non-operational or fake charitable trusts. In many cases, the trust exists only on paper and the donation was never made.
Some taxpayers show donations...
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