How to Avoid Ineligible Deduction Claims While Filing ITR

Filing your Income Tax Return (ITR) for the financial year 2024-25 (Assessment Year 2025-26) requires careful attention to detail. One major pitfall to avoid this season is claiming tax deductions that you are not eligible for. Ineligible or unsupported deduction claims can trigger scrutiny, delay refunds, and even lead to penalties. Below, we discuss common mistakes in claiming deductions, new rules in place for FY 2024-25, and how to ensure your tax deductions are accurate and compliant.

Understanding Deduction Eligibility and Tax Regimes

Under the old tax regime, taxpayers can claim various deductions (like Section 80C for investments including Tax Saving FDs and home loans), 80D for health insurance premiums, etc.), provided they meet the specific conditions.

In contrast, the new tax regime (which became the default from FY 2024-25) offers lower tax rates but largely excludes most deductions and exemptions. For example, popular deductions such as 80C (up to ₹1.5 lakh for specified investments) and 80D (for medical insurance) are not allowed if you opt for the new regime. Attempting to claim disallowed deductions while on the new regime would be invalid and can cause your return to be flagged. Choose the correct tax regime based on your income and investments, and then only claim deductions permissible under that regime.

Additionally, ensure you use the correct ITR form for your situation. Using the wrong form can itself be a mistake and may lead to a defective return. For instance, if you have capital gains or business income, you must opt for ITR-2 or ITR-3 instead of ITR-1, and so on. Selecting the proper form and regime is the first step to avoiding incorrect claims. It’s always better to know the difference between the forms, like ITR 1 and ITR 2, to avoid any unpleasant surprises at the time of filing returns.

Common Mistakes in Claiming Deductions

1. Claiming Deductions Without Actual Proof or Investment

A frequent mistake is claiming a tax-saving investment or expense that you haven’t actually made, hoping to get a higher refund. In recent years, many taxpayers tried this – for example, claiming deductions under Sections 80C or 80D without having proper receipts or proof. The Income Tax Department has caught on to such practices: in the last few years, thousands of taxpayers received notices for “suspicious” deductions under 80C, 80D, etc. that they couldn’t substantiate.

Some individuals skip submitting proof to employers during the year and then claim large deductions at the time of filing returns to get refunds. With advanced data analytics and the Annual Information Statement (AIS) in play, the tax department is identifying these fraudulent claims and sending notices demanding proof.

Additionally, ensure you’ve all the income tax proofs ready while filing returns, especially if you fall into the old tax regime. You may have to manually enter certain details to ensure your claims are legit.

Bottom line: Only claim those deductions for which you have actually invested or spent money and for which you can furnish documentary evidence if asked. As experts caution, any incorrect or unsupported claim can lead to scrutiny, investigation, or even penalties, so make sure every deduction you claim is backed by proper documentation (receipts, certificates, etc.)

2. Exceeding Eligible Limits or Double-Claiming

Every deduction comes with specific conditions and caps. Ensure you don’t claim more than allowed. For example, Section 80C has an overall limit of ₹1.5 lakh; Section 80D for health insurance has sub-limits (₹25,000 for self/family, additional ₹25,000 for parents, with higher limits if senior citizens are involved). You cannot claim beyond these prescribed limits or for expenses that don’t qualify (like general medical bills under 80D, which actually covers insurance premiums and preventive health check-ups only up to ₹5,000).

Also be cautious about double-claiming deductions. A common scenario is with house rent and home loans: Previously, some taxpayers tried claiming House Rent Allowance (HRA) deduction while also claiming home-loan interest deduction for a house in the same city. This raised red flags, as one typically cannot justify paying rent elsewhere if one owns a house in the same city (unless there are valid reasons). Under the new norms, such claims are under scrutiny – taxpayers will need to justify the legitimacy of maintaining a rented residence in addition to owning a home in the same location. In short, avoid any “double dipping” that the tax rules do not permit.

3. Misusing Deduction Sections (Political Donations, etc.)

The government provides tax breaks for genuine expenses like charitable or political donations, but claiming these without actually contributing is illegal. A recent focus area is Section 80GGC, which allows deductions for donations to political parties. There have been rising instances of fake claims under this section, and the Tax Department has started scrutinizing all 80GGC claims closely.

Many taxpayers who claimed political donation deductions have received notices asking for proof of payment. The department even launched a special campaign (“Tax Assist”) to help taxpayers respond to such notices and to encourage withdrawing incorrect claims. If you did not genuinely donate to a registered political party, do not claim this deduction – it’s not worth the risk. And if you did donate, keep the receipt and payment proof handy. Similar caution applies to Section 80G (charitable donations): claim deductions only for eligible organizations and with proper receipts. Remember, taxpayers can withdraw incorrect donation claims by filing an updated return, and ignoring notices about such claims can invite penalties.

4. Not Reporting All Income (Leading to Mismatches)

This isn’t a deduction per se, but it’s related. Sometimes people focus on deductions and forget to report small income (like bank interest, freelance income, etc.), thinking it will go unnoticed. However, the tax authorities cross-verify incomes and deductions together through your AIS and Form 26AS.

If you claim deductions that seem disproportionate to your reported income or you omit income that appears in AIS, it will raise a red flag. Always declare all your income sources before claiming deductions. For example, interest from bank accounts or bonds is taxable – if you claim a deduction for interest under Section 80TTA (savings account interest deduction) but haven’t reported the interest income itself, the inconsistency could trigger scrutiny. To avoid mismatches, cross-check your Form 26AS and AIS for all income and TDS entries, and ensure your deductions align with your financial transactions.

5. Ignoring Documentation Requirements

Starting this year, simply entering a lump-sum deduction amount in the ITR form isn’t enough. New disclosure rules require detailed information for many deductions at the time of filing. For instance, if you claim a health insurance deduction (80D), you must provide the insurer’s name and policy number in your ITR. If you claim a home loan interest deduction (Section 24b) or an education loan interest (Section 80E), you’ll be asked for details like the lender’s name, loan account number, etc. Even claiming an electric vehicle loan interest deduction (Section 80EEB) now requires the vehicle’s registration number.

For HRA exemption, the form may ask for your landlord’s PAN (if rent exceeds ₹1 lakh/year) and a breakup of rent paid month-wise. These requirements are designed to ensure you have the necessary documents before claiming the deduction. Missing documents can result in denial of the deduction and lead to added tax liability with interest.

So, gather all relevant paperwork (insurance receipts, investment proofs, rent receipts, loan certificates) in advance. If you cannot produce these details, you likely should not claim the deduction.

New Compliance Measures in FY 2024-25

For the FY 2024-25 filing season, the Income Tax Department has implemented stricter compliance checks to curb ineligible deduction claims. Notably, the Central Board of Direct Taxes (CBDT) has mandated itemized disclosure for deductions under the old regime, and many validation checks are built into the ITR forms.

The introduction of these measures comes on the heels of a major investigation that found over 90,000 salaried taxpayers had falsely claimed deductions, resulting in ₹1,070 crore of tax revenue loss. In response, the tax authorities are taking a two-pronged approach: upfront verification at the time of return filing, and backend cross-verification after filing.
What does this mean for you as a taxpayer? Firstly, when you fill out your ITR form (especially ITR-1 or ITR-4 for salaried and small taxpayers), you will notice additional fields asking for specifics of each deduction. The era of simply entering one aggregate number for Section 80C is over – you’ll need to break it down.

The goal is to make “lump-sum claims without supporting documents a thing of the past”, forcing accuracy and transparency. Secondly, once you submit your return, the system will automatically cross-check your claims against information from financial institutions. As per the new rules, “all submitted data will be cross-referenced with third-party databases using PAN/Aadhaar linkages”, meaning the IT department will match your claims with data from banks, insurance companies, mutual funds, etc., to verify if they are genuine. If you claimed an insurance premium, for instance, they can verify it against what the insurer reported. This automated check significantly reduces the chances of any fraudulent or inflated deduction slipping through.

Practical Tips for Error-Free Deduction Claims

Filing your ITR accurately is not just about avoiding trouble; it also ensures you get the tax benefits you rightfully deserve without hiccups. Here are some practical tips to help you stay on the right side of the rules:

• Start with Documentation 

  
  Begin the filing process by collecting all relevant documents and proofs for the year. This includes investment proofs (PF, PPF, NSC, mutual fund statements for ELSS, etc.), insurance premium receipts, donation receipts (with the organization’s PAN and registration details for 80G/80GGC), rent receipts and rental agreements, loan interest certificates (home loan or education loan).

  
  Having these in hand will help you fill the new detailed ITR form correctly and confidently. Remember, if you claim a deduction and a notice comes later, you’ll need to submit these proofs. It’s best to self-audit your documents now rather than scramble later. As one advisory notes, missing documents can lead to deduction denial and tax demands with interest – avoid that by being prepared.
   

• Cross-Check with AIS and Form 26AS

  
  Your Annual Information Statement (AIS) and Form 26AS are mirrors of the data the tax department has about you. Before finalizing your return, download and review these from the income tax e-filing portal. AIS shows your financial transactions – salaries, interest, dividends, stock trades, high-value transactions, etc., and also certain investments reported by institutions.

  
  Form 26AS shows tax deducted at source (TDS) and tax payments. Make sure the deductions you plan to claim are not glaringly inconsistent with these statements. For example, if AIS doesn’t show any record of an insurance policy but you are claiming a large 80D amount, be extra sure you have the policy details and receipts to substantiate it. The tax department has explicitly stated that it will cross-verify all deductions and exemptions claimed in the ITR against AIS, and any mismatch will trigger scrutiny and possible penalties. So do your own cross-verification: if you spot a discrepancy (say, a bank didn’t report something you have proof for), you can still claim it but be ready to explain; if you find you made an error, correct it before filing.
   

• Stay Within the Lines

  
  Adhere strictly to the rules for each deduction. This means: do not claim beyond the allowed limit, do not claim a deduction for something that’s not explicitly eligible, and follow any conditional requirements. For instance, if claiming Section 80E (education loan interest), ensure the loan is from a financial institution and for a qualified higher education course (personal loans don’t count, and there’s a limit of 8 years of claim). For Section 24 (home loan interest), remember the ₹2 lakh limit for self-occupied property and ensure you’re the borrower and owner of the property. For Section 80DD or 80U (disability-related deductions), you must have the prescribed medical certificate. 
   

• Fix Errors Promptly if Discovered

  
  Despite precautions, mistakes can happen. You might realize after filing that you accidentally claimed something ineligible or forgot to include necessary info. The good news is the tax laws allow corrections. If you catch a mistake before the department processes your return, file a revised return under Section 139(5) by the deadline (which for AY 2025-26 is currently September 15, 2025) to update or remove the wrong deduction without penalty.

  
  If the return is already processed or if you receive a notice, don’t panic. Respond promptly through the e-filing portal – you may file a rectification request (Section 154) for obvious errors, or even an updated return (ITR-U) to withdraw a deduction and pay any due tax.

  
  The key is to be proactive: a timely correction or response can save you from heavy penalties. On the flip side, ignoring a notice is the worst thing to do – it could result in penalties up to 200% of the tax evaded in extreme cases, and even prosecution in cases of willful evasion. So if the tax department flags your deduction, engage with them, provide the proof or admit the mistake and pay the tax if it was an incorrect claim.