The Income Tax Department employs several verification mechanisms to ensure that the details provided in Income Tax Returns (ITRs) are accurate and compliant with the law. Here’s a breakdown of the various ways the department verifies returns:
🔍 1. Matching with Form 26AS / AIS / TIS
- Form 26AS: A consolidated tax credit statement showing TDS, TCS, and advance tax.
- Annual Information Statement (AIS): Gives a detailed view of financial transactions such as:
- Bank interest
- Dividend income
- Share/mutual fund trades
- Property purchases/sales
- Foreign remittances
- Taxpayer Information Summary (TIS): Summarized version of AIS for easier comparison.
- Purpose: Verifies whether the taxpayer has reported all income correctly.
📑 2. Reconciliation with TDS/TCS Statements (Form 16, 16A)
- Cross-checks income declared with TDS deducted by employers (Form 16) or other deductors (Form 16A).
- Any mismatch may lead to intimation notices (u/s 143(1)) or scrutiny.
💻 3. Data Mining & Analytics (Project Insight)
- Uses AI/ML tools to detect suspicious patterns such as:
- High-value purchases not matching declared income
- Sudden increases in deductions or losses
- Frequent refund claims
- Integrates data from banks, mutual funds, stock exchanges, etc.
🏠 4. PAN-Aadhaar Linking & Bank Data Access
- Enables real-time access to:
- Bank balances
- High-value transactions
- Loan EMIs
- Cross-verification with PAN-based profiling.
🏦 5. SFT (Specified Financial Transactions) Reporting
Entities like banks, mutual fund companies, property registrars, etc., must report transactions above certain thresholds:
- Cash deposits > ₹10 lakh in a year
- Credit card bill payments > ₹1 lakh in cash or ₹10 lakh otherwise
- Property purchases/sales > ₹30 lakh
- Mutual fund investments > ₹10 lakh
These are matched with the ITR.
📬 6. Notice Under Section 139(9), 143(1), 143(2), or 148
- 143(1): Automated mismatch notice based on ITR and Form 26AS/AIS.
- 143(2): Scrutiny notice requiring deeper inquiry.
- 148: Reassessment notice if income has escaped assessment.
- 139(9): Defective return requiring correction.
💬 7. Verification of Bank Accounts and Digital Footprint
- UPI, net banking, online trading activity, digital wallet usage may be analyzed to check consistency with declared income.
🧾 8. Review of Audit Reports (Form 3CA/3CD/3CEB)
For businesses and professionals subject to tax audit, the department verifies:
- Turnover
- Expenses
- Compliance with TDS/TCS provisions
💼 9. Survey and Search Operations (U/s 133A / 132)
- In high-risk or suspicious cases, on-site inspections or raids are conducted.
- Undisclosed income and assets can be uncovered.
🧠 10. Third-Party Information Exchange
- Collaborations with agencies like:
- SEBI (for stock market data)
- RBI (for foreign remittances)
- Real estate registrars
- Information is used to verify large asset purchases or overseas holdings.
✅ 11. e-Verification of High-Value Transactions
- Taxpayers are sometimes asked to e-verify transactions in AIS via the compliance portal.
- Failure to respond can lead to further action.
🔁 12. Comparison Across Years
- Year-on-year comparison of:
- Income
- Deductions
- Capital gains
- Refund claims
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Unusual variations may trigger scrutiny.