Hyderabad IT professionals scam ₹110 crore from fake donations

The Income Tax (I-T) Department in Hyderabad has uncovered a massive ₹110 crore scam, where several IT professionals falsely claimed tax refunds by pretending to donate large sums of money to political parties. These donations were made to registered unrecognised political parties (RUPPs) to exploit Section 80GGC of the Income Tax Act, which allows tax deductions for political contributions.

The scam, involving professionals from 36 different companies, saw individuals claiming donations that were never actually made. In some cases, funds were transferred via cheque or bank deposit but were later returned in cash, with a commission deducted. For example, one IT professional, earning ₹46 lakh annually, claimed to have donated ₹45 lakh to a political party.

This fraudulent activity marks a shift from previous investigations, which primarily focused on claims related to house rent allowance (HRA), education loans, and home loan interest. While government employees were the primary targets in Telangana and Andhra Pradesh in 2023, this latest probe has turned its attention to private sector employees.

The breakthrough came when investigators discovered that many employees had used a shared email address to file these fraudulent claims. These false donations were reported as tax-deductible under Section 80GGC. The political parties involved had never contested an election and had failed to submit contribution reports to the Election Commission of India (ECI).

Now, the I-T department is reviewing tax returns from the fiscal years 2021-22 to 2023-24. Employees have been asked to withdraw any incorrect claims, and those under scrutiny will receive notices questioning the legitimacy of their refund requests. Those found guilty will be required to file an updated return (ITR-U) by March 31, 2025, to avoid facing a penalty of up to 200%.

Some major tech companies have already stopped processing deductions under Section 80GGC and have switched to tax deducted at source (TDS). However, employees are still finding ways to bypass the system and claim refunds independently. In one instance, 430 employees from a large IT company claimed deductions totaling ₹17.8 crore, with an average refund of ₹4.2 lakh per person. The company itself was not involved, as employees acted independently.

To curb further fraud, the I-T department has begun conducting awareness sessions in major IT and financial firms. These sessions, held from January 28 to 30 in Hyderabad, provided guidance on avoiding fraudulent claims in tax returns.