I-T department is cross-verifying claims in real time. You've been warned.

But this income tax season, this is going to change. 

The I-T department is rolling out an integrated verification system designed to automatically cross-check information against multiple government databases at the time of ITR filing.

Imagine a taxpayer filling out inaccurate details of their investment claim—home loan details, house rent allowance (HRA), or insurance—the system will immediately throw up an error and prompt the taxpayer to modify the return. 

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Meaning: Taxpayers will be caught red-handed if they try to play smart. 

“You can no longer fake a loan account number or a policy document number," said Ashish Karundia, founder of Ashish Karundia & Co., Chartered Accountants. “These are now directly mapped to your permanent account number (PAN) or Aadhaar." 

Cross-platform data sharing

Insurance companies, for instance, already share data with the government. So, if a person tries to claim a deduction using someone else's insurance policy number, the system can identify the discrepancy. 

The real-time verification now extends to HRA claims, loans for housing and education, and even deductions on electric vehicles. Each claim is verified using backend integrations with banks and platforms such as the m-Parivahan app.

"As soon as a taxpayer inputs any detail, say a loan number or an insurance policy, the system cross-verifies it instantly with the information they already have. If something doesn’t match, it throws an error and prompts the taxpayer to modify their return," Karundia added.  

To be sure, so far, verification has been happening manually and after the detection of a post-filing discrepancy. “The I-T department would look at your return, flag inconsistencies, and then issue a notice. It was slow and added to the workload of tax officials," he said. 

Now, the department aims to entirely automate this process. To do so, the newly notified ITR forms require taxpayers to provide a detailed breakup of income tax deductions through specific drop-down fields, replacing the earlier practice of entering a single consolidated figure, according to CA Vijaykumar Puri, Partner at VPRP & Co LLP.

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He explained how earlier, someone could simply write ₹1.5 lakh under Section 80C without specifying if it was in PPF, ELSS, or LIC. “Now, taxpayers must specify the exact amounts invested in instruments like PPF, ELSS, or LIC. This added transparency will not only deter fake claims but also give the tax department clear visibility into the nature of each deduction," he said.

A nudge towards the new tax regime

The move from human-led scrutiny to system-led verification is crucial for ensuring better compliance and fewer fraudulent claims. “It significantly reduces the scope for manual oversight and any manipulation. It eliminates case-by-case verification, conserves departmental resources, and ensures quicker, more reliable compliance," he added.

Less human involvement also means that people won't be able to fabricate investment proofs like rent receipts for claiming HRA deduction. “When people know that everything is digitally captured, the chance of fraud automatically goes down," Karundia said.  

Karundia explained that the move is a step closer to former finance minister Arun Jaitley's broader strategic vision of lower tax rates, fewer exemptions, and minimal discretion introduced.

In essence, by automating cross-verification and reducing human intervention, the I-T department is pushing taxpayers towards an exemption-less new tax regime.

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The I-T department on 27 May extended the ITR filing due date for FY25 (AY26) from 31 July to 15 September. The decision was made after a delay in issuing the notification of ITR forms.