India's Income Tax Department Cracks Down on Donation-Related Deductions Amid Widespread Misuse

The Income Tax department has launched a targeted compliance campaign after detecting widespread misuse of donation-related tax deductions, particularly involving unrecognised political parties and dubious charitable institutions. Taxpayers who may have claimed ineligible deductions are now receiving SMS and email advisories urging them to review and correct their returns.In a statement issued on Saturday, the finance ministry said the move follows extensive data analysis by the Central Board of Direct Taxes (CBDT), which found “huge amounts of bogus claims” made under Sections that allow deductions for donations. These claims enabled individuals and companies to reduce their tax liabilities and, in many cases, obtain unwarranted refunds.Why the tax department is nudging taxpayersAccording to the ministry, enforcement actions uncovered instances where Registered Unrecognised Political Parties (RUPPs)—many of which:did not file income tax returns,were non-operational at their registered addresses,had no political activity on record,were being used as conduits for hawala transactions, illicit fund routing, cross-border remittances, and issuing fake donation receipts.Follow-up searches on certain RUPPs and trusts revealed evidence of:Also ReadUnable to report foreign assets in revising tax returns? Here is what to doNew ITR forms under 2025 Income Tax Act to be notified before FY28: GovtAdvance tax check: Who must pay now and what missing the deadline can costNew Income Tax Act from April 2026; ITR forms will be ready by JanuaryITR deadline extended to Dec 10 for firms under audit: Details explainedbogus donations claimed by individuals,fake CSR spending booked by companies, andlarge-scale receipt issuance without actual charitable or political activity.What the SMS and email advisories mean for youStarting December 12, 2025, the tax department began sending advisories to taxpayers who:may have claimed deductions for donations to suspicious entities, or failed to provide sufficient details to confirm the genuineness of the done.Described as a “taxpayer-friendly NUDGE campaign,” the initiative gives individuals an opportunity to:review past returns,withdraw incorrect deductions, andfile an updated income tax return (ITR-U) if needed.CBDT said that a significant number of taxpayers have already revised their returns for Assessment Year 2025–26, and have also filed updated returns for previous years after realising their claims were not valid.What taxpayers should do nowThe department has urged individuals to:re-check whether the entities they donated to are genuine, registered, and eligible for tax deduction claims, verify the correctness of receipts, ensure their mobile number and email ID registered with the department are accurate, so no communication is missed.Why this mattersClaiming deductions through donations has long been an effective way to reduce tax liability, but the crackdown emphasises the importance of donor due diligence. Donations to entities not approved under the Income Tax Act can result in:deduction reversal,tax demand notices, penalties for misreporting, and scrutiny of past returns.For many salaried taxpayers who rely on these deductions to optimise tax outgo, the advisory serves as a reminder that tax-saving strategies must be accurate, compliant, and well-documented.For now, taxpayers who receive such advisories are advised to treat them seriously, review their filings immediately, and correct any oversight before it escalates into a formal tax demand.Key points:The Income Tax department has started sending SMS and email advisories to taxpayers for wrongful deduction claims related to unrecognised political parties or charitable institutions.The Central Board of Direct Taxes (CBDT) has observed that huge amount of bogus claims have been made on account of donation to Registered Unrecognised Political Parties (RUPPs) or Charitable Institutions and reduced their tax obligations and have also claimed bogus refunds.The CBDT said that evidence gathered from enforcement actions indicated that RUPPs, many of which were non-filers, non-operational at their registered addresses, and are not engaged in any political activity, were being used as conduits for routing funds, hawala transactions, cross border remittances, and issuing bogus receipts for donations.The CBDT carried out follow-up searches against some of these RUPPs and Trusts and gathered incriminating evidence in respect of bogus donations by individuals and bogus CSR by companies, it said.CBDT's data analytics indicated that many taxpayers are suspected to be indulged in claiming deductions for donation made to suspicious entities or have not provided relevant information to ascertain the genuineness of the entities.