ITR filing 2025: Salaried taxpayers steer clear of unverifiable deductions, increasingly opt for new tax regime, say CAs

Income tax return filing 2025: Fraudulent tax deduction claims by salaried individuals have dipped significantly this year, say tax consultants

Increased scrutiny by the income tax department using Annual Information Statement (AIS) data, AI, and other tech tools has put salaried taxpayers on their guard.

The recent I-T raid on tax professionals and entities aiding fraudulent tax deduction claims has spooked salaried taxpayers further, prompting them to exercise extreme caution while filing their income tax returns (ITR) for the financial year 2024-25.

Increased scrutiny, copious disclosures for the salaried

“Historically, it’s been observed that I-T did not subject salaried taxpayers to intense scrutiny. However, things have changed in the recent years and this time round, due to news around I-T department’s crackdown on fraudulent deduction claims, they are availing of deductions only when they have proof to back these claims and are ensuring that the documentation is foolproof,” said Vivek Jalan, Partner, Tax Connect Advisory.

Besides popular tax benefits related to investments and rent, donation, particularly to political parties, is another route such individuals use to inflate deduction amounts and reduce tax payable. “Many salaried taxpayers often resorted to inflating donations made, especially to political parties, to make higher deduction claims under section 80GGC. This year, the fear of raids, notices and queries has brought down such malpractices significantly,” says Jaipur-based chartered accountant Akhil Pachauri.

Also read: House panel report on new I-T Bill: Here are the 5 key takeaways for individual taxpayers

ITR utilities demand detailed disclosures

Moreover, ITR utilities released so far also demand additional, detailed disclosures to support deduction claims under sections 80C (tax-saver investments), 80D (health insurance premiums), 10 (house rent allowance) and so on.

“The ITR utility now demands detailed disclosures across various sections, ensuring that each deduction claimed is traceable, identifiable, and verifiable. Clients filing under ITR-1 and ITR-2, who traditionally reported deductions like HRA, 80C, 80D, and 80E with minimal details, are now being prompted to furnish additional data. For example, for HRA claims, taxpayers have to provide place of work, basic salary, actual HRA received and rent paid,” explains chartered accountant Himank Singla. Likewise, for section 80C deductions, they have to now provide documentation identification details, name of the insurers, policy numbers and so on.

“Many taxpayers were caught off guard. For instance, a salaried client claiming house rent allowance (HRA) for Rs 2.4 lakh was prompted to enter rent paid and actual HRA received separately — something not required in previous years. Another taxpayer had to look up her insurance policies and retrieve exact policy numbers after the ITR utility marked her 80C claim as incomplete. From a professional’s standpoint, these changes mark a welcome move toward cleaner deductions and audit-readiness,” he says.

However, even taxpayers who may not have intended to inflate their deduction claims might be at the receiving end of this tighter scrutiny due to lack of awareness. “Most self-filers were unaware that generic claims without identification details could lead to processing delays or scrutiny,” points out Singla.

Also read: ITR 2024-25: Seven common mistakes to avoid while filing income tax returns

A clear shift towards the new regime

The old tax regime offers a raft of deductions and exemptions that help taxpayers reduce their tax outgo, while the new regime offers concessional rates, but minimal tax sops. The government has been on a mission to incentivise the new tax regime since its introduction in February 2020. In July 2024, Finance Minister Nirmala Sitharaman sweetened the deal further by liberalising tax slabs and hiking the standard deduction from Rs 50,000 to Rs 75,000 only under the new regime.

However, the announcement came in July, while most employees had already communicated their regime of choice to their employers in April 2024. Not surprisingly, many taxpayers who had picked the old regime in their proposed investment declarations have decided to switch to the new regime while filing returns.

Over 70 percent of return-filers had opted for the new regime in financial year 2023-24 (assessment year 2024-25), and the number could be much higher this time round as also for FY 2025-26. “This is the new trend that we observe this year. Salaried individuals are allowed to switch between regimes every year and they can also make that choice at the time of filing returns. So, many are indeed switching from old to new this year. They will be entitled to a refund on any excess tax deducted by their employer based on the proposed investment declarations,” says Jalan.