The Income Tax Department has introduced a more stringent scrutiny framework for FY 2025-26, powered by AI and advanced data analytics. From high-value transactions to undisclosed incomes, the tax authorities are leaving no stone unturned in identifying suspicious cases. Experts warn that individuals flaunting a lavish lifestyle but underreporting income could be on the radar.
ITR Filing Update: Over 60 Lakh Returns Already Filed
As per the latest data from the Income Tax Department, over 60 lakh ITRs have been filed for FY 2024-25 (AY 2025-26), with nearly 1 lakh returns already processed. With stricter scrutiny guidelines in place this year, taxpayers are advised to exercise extra caution while filing their returns.
Data Analytics and AI: The New Face of Income Tax Scrutiny
The tax department is now leveraging real-time data tracking to cross-verify declared income with lifestyle and financial transactions. Authorities are particularly focusing on individuals with:
✅ Low declared income but high-profile expenses
✅ Luxury purchases such as gold, designer brands, and luxury vehicles
✅ Large-scale property investments
✅ High foreign travel expenses
Transactions that raise red flags include:
- Credit Card spends exceeding ₹10 lakh annually
- Property purchases above ₹30 lakh
- Cash deposits exceeding ₹2 lakh
The department is no longer limiting scrutiny to big corporates or businessmen; even salaried individuals or professionals living beyond their declared means could face investigation.
New ITR Scrutiny Rules Applicable for FY 2025-26
The Income Tax Department has issued specific grounds under which scrutiny will be compulsory, including:
CS01: Post-Survey Investigation
If a survey under Section 133A has been conducted, your ITR will automatically be scrutinized.
CS02 & CS03: Search & Seizure Cases
All taxpayers subject to tax raids or whose documents were seized between April 1, 2023, and March 31, 2025, will undergo mandatory scrutiny.
CS05: History of Undeclared Income
Repeated cases of hidden income above ₹50 lakh in metro cities or ₹20 lakh in non-metro areas will attract direct investigation.
CS06: Information from CBI or ED
If agencies like CBI, ED, or other law enforcement bodies share information against a taxpayer, their ITR will be scrutinized.
Common Mistakes That Trigger ITR Notices
Be mindful of these common errors that can attract scrutiny:
- Failing to disclose interest from Fixed Deposits (FDs) or Savings Accounts
- Making incorrect TDS claims
- Claiming exemptions without valid documents
- Not declaring income from investments made in the name of spouse or children (liable under Section 64 of the Income Tax Act)
Important Tips to Avoid ITR Scrutiny
✔️ Match your declared income with Form 26AS, AIS, and bank statements
✔️ Honestly declare all income, including small amounts
✔️ Maintain proper records of cash transactions, especially for business owners
✔️ Declare the source of funds for expensive hobbies or high-value purchases
Final Words: Transparency is the Key
With the Income Tax Department equipped with AI, data integration, and real-time monitoring, the days of evading taxes through discrepancies are over. Any disconnect between your income and expenses can invite a scrutiny notice.
The bottom line: Be transparent, file accurate returns, and declare all sources of income to avoid complications with the tax department.