CBDT Mandates Scrutiny for Taxpayers: Six Categories for FY27

The CBDT has identified six specific categories of cases that will be compulsorily selected for complete scrutiny during FY 2026-27. According to the guidelines, survey cases where taxpayers' premises were subjected to survey under Section 133A on or after April 1, 2024 will face automatic scrutiny selection. Search and requisition cases against taxpayers where searches under Section 132 or requisitions under Section 132A were initiated on or after April 1, 2024 will also be subject to mandatory scrutiny. Reassessment cases where the Income Tax Department issued notices under Section 148 will be selected for compulsory scrutiny, as these notices are issued when the department seeks to reopen assessments on grounds that income may have escaped assessment. ITR-7 filers claiming exemptions despite invalid registrations will be scrutinized if their registration, approval or recognition was denied, cancelled or withdrawn on or before March 31, 2025, particularly for claims under Sections 12A, 12AB, 10(23C) and Section 35. Trusts and institutions claiming tax benefits despite registration issues may also face scrutiny where registration or approval under provisions such as Sections 12A, 12AB, Section 10(23C) and related clauses was denied, cancelled or withdrawn, but tax exemptions or deductions were still claimed in ITR-7. Recurring additions refer to situations where the tax department made an addition to a taxpayer's income in an earlier year, but the taxpayer continues to adopt the same tax position in subsequent years. However, not all such cases will be selected for complete scrutiny - the addition made in the earlier assessment year must exceed ₹50 lakh in specified metro charges: Ahmedabad, Bengaluru, Chennai, Delhi, Hyderabad, Kolkata, Mumbai and Pune, with the limit being ₹20 lakh in non-metro charges. The issue must have attained finality in favour of the tax department, which would include cases where the taxpayer did not contest the addition in appeal, or where appellate authorities upheld the department's view and no further appeal was filed.

Complete scrutiny assessments are significantly more comprehensive than limited scrutiny, as explained by Neeraj Agarwala, senior partner at Nangia & Co. In limited scrutiny cases, the department may select a case for verification of specific claims, such as deductions under Section 80G, but usually does not examine other aspects of the return. However, in complete scrutiny, the assessing officer may review all components of the return, including income, deductions, exemptions, capital gains, foreign assets, business transactions and other financial disclosures. As a result, taxpayers undergoing complete scrutiny may need to submit a wider range of supporting documents, such as bank statements, books of account, investment proofs, invoices and transaction-related explanations. A survey is a tax proceeding under Section 133A of the Income-tax Act, 1961, or Section 253 of the Income-tax Act, 2025, in which tax authorities may visit business premises to inspect books of account, verify cash and stock, and gather information relevant to tax compliance. Unlike a search operation, a survey generally does not involve the seizure of assets. Under CBDT guidelines, a return will be compulsorily selected for complete scrutiny if a survey under Section 133A, other than a TDS-related survey under Section 133A(2A), has been conducted on or after April 1, 2024, and the information gathered warrants further examination through a detailed assessment. A search under Section 132 is a powerful investigation tool used in cases involving suspected tax evasion, undisclosed income or unaccounted assets, during which authorised tax officers can enter and search premises, inspect electronic records, and seize books, documents, cash, jewellery and other valuables. A requisition under Section 132A allows the Income Tax Department to obtain assets or documents already seized by another government agency. Unlike a survey, which is limited to verifying business records and generally does not permit the seizure of assets, a search involves far wider powers.

The Income Tax Department receives information from its own investigation wing and agencies such as Customs, goods and services tax (GST) authorities, the Enforcement Directorate, Sebi and foreign tax authorities under information-sharing arrangements. If this information suggests possible tax evasion or undisclosed income, the return may be picked for compulsory scrutiny. Examples include unreported foreign assets, unexplained cash transactions, bogus purchases or mismatches between third-party data and the income tax return. The department increasingly focuses on targeted scrutiny based on credible information rather than broad-based selection. Taxpayers who have faced search or survey actions, reassessment proceedings, significant unresolved issues from earlier years, or specific information with the department that indicates possible tax evasion are more likely to face compulsory scrutiny. In contrast, compliant taxpayers who file accurate returns and do not fall into these risk categories are less likely to face compulsory scrutiny. Routine mismatches in the annual information statement (AIS), statement of financial transactions (SFT), or TDS data alone would generally not trigger such scrutiny. The revised framework seeks to reduce scrutiny for compliant taxpayers while focusing departmental resources on high-risk and possible tax-evasion cases.

Tax experts are advising taxpayers to exercise caution when filing their income tax returns for assessment year 2026-27. According to Mint reports, Balwant Jain, tax and investment expert, recommends waiting until at least June 15 before starting the filing process to allow AIS records to be reconciled with personal records. The Income Tax Department receives data from multiple sources including employers, banks, brokers, mutual fund houses, registrars and depositories, making it possible for the department to have more comprehensive information about taxpayers' finances than they do themselves. For salaried individuals and retail taxpayers, the guidelines do not create any new tax burden but reinforce the need to maintain documentation and ensure consistency between ITR disclosures and financial records. It is important to retain documents supporting income and deductions claimed under Chapter VI-A of the Income-tax Act, as the burden of proof lies with the taxpayer during scrutiny. Any notice from the Income Tax Department should be reviewed and responded to within the prescribed timeline. Since scrutiny proceedings are conducted under the faceless assessment regime, all communications and document submissions must be made electronically through the portal. Taxpayers should, therefore, regularly monitor the portal and maintain proper records.

For FY26, the due date for filing quarterly TDS statements for the January-March quarter was 31 May 2026. As reported by Mint, once information is submitted, it must be processed, validated and reconciled before it appears in individual taxpayer records. Jain explains that some institutions also report data late, which can result in incomplete information appearing in pre-filled ITRs. Taxpayers may overlook transactions that took place during the year, which may eventually appear in AIS records when they are updated. The deadline for most individual taxpayers to file their returns is 31 July 2026, with experts recommending that taxpayers review their AIS and Form 26AS, verify all reported transactions, and ensure proper documentation including bank statements, sale deeds, gift deeds, loan records and investment proofs before filing. For ordinary taxpayers, the document serves as a reminder that filing an ITR does not always end the compliance process.

According to Mint reports, taxpayers with income reported by multiple entities face the biggest mismatch risk during the filing process. A salaried individual may have fixed-deposit interest, dividend income, capital gains from mutual funds or stocks, or tax deductions reported by different institutions. Since these entries may be reported separately, taxpayers should verify that all income has been considered before filing. Maintaining several bank accounts is not an issue itself, but taxpayers should ensure that interest earned across all accounts is properly reported in their tax returns, as all accounts are linked to PAN and the department can consolidate information. The deadline for most individual taxpayers to file their returns is 31 July 2026, with experts recommending that taxpayers review their AIS and Form 26AS, verify all reported transactions, and ensure proper documentation including bank statements, sale deeds, gift deeds, loan records and investment proofs before filing. Those who have received notices earlier, undergone survey action, or have unresolved tax disputes may face a higher probability of examination.