With over 1.65 lakh cases selected for tax scrutiny, there has been a significant increase in income tax notices in the financial year 2024-25. The reasons for this surge are varied, ranging from unusual cash deposits and unexplained bank credits to mismatches with GST data, among others. As you prepare to file your income tax return (ITR) this year, it is important to remain vigilant. To ensure transparency in the system, the Central Board of Direct Taxes (CBDT) has already released guidelines outlining the parameters for selecting ITRs that will undergo complete scrutiny in the financial year 2025-26. These guidelines focus on specific categories that have historically presented risks of tax evasion, including search and survey cases, and recurring contentious issues. To make things easier for you, we have summarised all the important points from the latest guidelines so that you don’t have to navigate this complex web alone.
Like what you're reading?
Get our latest, straight to your inbox.
What is ITR scrutiny?
The Income Tax Department examines all income tax returns submitted by taxpayers to verify its accuracy and authenticity. However, in special cases, ITR scrutiny is carried out. It is nothing but a detailed examination of your return to ensure that all details, including income, deductions, and exemptions and other details reported are correct and comply with the provisions of the Income Tax Act and that there is no scope of tax evasion.
If any information in your ITR is found to be incomplete or inconsistent, your ITR may be selected for scrutiny. The department informs taxpayers about this scrutiny through a notice.
During scrutiny, the department may ask for supporting documents or clarifications regarding specific entries in the return. It is not necessarily a cause for concern if your return is picked, but responding timely and accurately is crucial.
What are the types of ITR scrutiny?
- Compulsory Scrutiny: This type involves income tax returns that are comprehensively examined, usually triggered by high-risk parameters such as large refunds claimed, mismatch in TDS, reporting of high-value transactions, or complex business transactions and are selected for scrutiny under Section 143(2) of the Income-tax Act, 1961. For example, sudden dip in income despite consistent profits in earlier years, or disproportionately high business expenses.
- Limited Scrutiny: A focused examination of one or more specific issues or transactions identified through the department’s risk-based parameters or when limited mismatches or red flags appear, for example, difference between TDS reported and income declared, high-value foreign travel with low declared income, discrepancy in property sale value and stamp duty value, or large cash deposits during the year.
- Manual Scrutiny: This selection of cases is carried out manually based on specific criteria defined by the CBDT. In cases flagged outside the automated system, such as returns filed in response to notices, or where prosecution proceedings are initiated. For example, cases involving information from law enforcement or intelligence agencies, cases reopened under Section 147 (income escaping assessment).
- Computer-Assisted Scrutiny Selection (CASS): It’s a system-driven, algorithm-based scrutiny selection mechanism that categorizes cases for complete or limited scrutiny. CASS examines ITRs based on risk assessment rules using analytics and data integration. For example, declines in gross or net profit, excessive deductions, foreign transactions, mismatched stock figures, and issues with non-ITR filers.
What are the new CBDT ITR compulsory scrutiny guidelines for FY 2025-26?
The Central Board of Direct Taxes (CBDT) has identified six cases that will be subject to compulsory scrutiny during FY 2025-26, according to its latest guidelines:
a) Survey-based cases under Section 133A
If the Income Tax Department conducts a survey on a taxpayer on or after April 1, 2023, the ITR for the corresponding financial year will be mandatorily scrutinised, irrespective of whether any discrepancies are visible in the return.
For example, if a survey was conducted in August 2023, it pertains to FY 2023-24 (AY 2024-25). Therefore, the ITR filed for AY 2024-25 will mandatorily undergo scrutiny, even if the taxpayer filed the return on time, declared all income accurately, and paid due taxes, the selection for scrutiny is automatic due to the survey.
Similarly, if the survey occurred in FY 2024-25, the ITR filed for AY 2025-26 will be compulsorily scrutinised.
b) Search and requisition cases under Sections 132 and 132A
If a search is conducted under Section 132 or a requisition is made under Section 132A between April 1, 2023, and March 31, 2025, the income tax return of the person searched, or any other person related to the case, will be mandatorily selected for scrutiny. However, the scope of scrutiny depends on the date of the search. If the search or requisition takes place on or before August 31, 2024, scrutiny will cover FY 2024-25 (AY 2025-26) as well as earlier years. But if the search occurs on or after September 1, 2024, scrutiny will be limited to FY 2024-25 (AY 2025-26). For example, if a search is conducted on July 15, 2024, scrutiny may extend to past years in addition to FY 2024-25 (AY 2025-26). In contrast, a search conducted on October 10, 2024, will trigger scrutiny only for FY 2024-25 (AY 2025-26).
c)ITR-7 filers claiming exemptions without valid registration
Taxpayers filing ITR-7 and claiming exemptions under Sections 11, 12, 12A, 12AB, or 10(23C) will be compulsorily scrutinised if their registration was not granted or was cancelled on or before March 31, 2024; and they still claim exemption in the ITR for AY 2025–26 based on that registration. In such cases, the claim of exemption is treated as invalid, unless the cancellation is reversed or registration is restored by a competent appellate authority before or during assessment.
d) Recurring additions in previous assessment years confirmed by appeal
If a taxpayer has previously encountered repeated additions in assessments arising from a consistent legal or factual issue, the current ITR during FY 2024-25(AY 2025-26) will be closely examined if:
-The addition has been affirmed on appeal
-The amount involved is ₹50 lakh or more in metropolitan areas, or ₹20 lakh or more in other locations.
This scrutiny also extends to transfer pricing issues and comparable disputes.
e) Specific tax evasion cases
Credible Tax evasion alerts by Intelligence Agencies will be scrutinised if they are reported by: i) Law enforcement agencies, ii) regulatory bodies, iii) intelligence departments. This scrutiny occurs regardless of the risk profile and is based on external intelligence. It includes reports about undisclosed foreign income, benami transactions, bogus donations, or GST mismatches flagged by other departments.
f.) Scrutiny notices must be issued by June 30, 2025, for ITRs filed during FY 2024–25
For ITRs filed in FY 2024–25 (AY 2025–26), i.e, till March 31, 2025, the Income Tax Department must issue notices under Section 143(2) by June 30, 2025. If the notice is not issued by this date, the scrutiny will be considered legally invalid.
For which ITRs will the new ITR compulsory scrutiny guidelines be applicable?
The guidelines released by the CBDT dated June 13, 2025, will apply to income tax returns filed during the financial year 2025-26. This implies that these rules will apply to income tax returns filed for the financial year 2024-25, or the assessment year 2025-26. Do note that the last date to file income tax returns for the financial year 2024-25 is September 15, 2025.
What happens if your ITR is selected for compulsory scrutiny?
Notice issued: You will get a notice under Sections 143(2) and 142(1) asking for documents to support your ITR.
Submit necessary documents: Then, you have to submit the required documents through the income tax e-filing portal.
Faceless evaluation: The review for compulsory ITR scrutiny is conducted online, eliminating the need for meetings with officers, ensuring fairness.
Final order: After checking your documents, the tax department issues a final order.
Does the ITR compulsory scrutiny apply to everyone?
No, only ITRs filed during FY 2025-26 that match the specific high-risk categories listed by the CBDT will be subject to compulsory scrutiny.
Can I avoid compulsory ITR scrutiny?
You can’t avoid scrutiny if your case falls under the categories listed above. However, to reduce the chances:
- File y our ITR accurately.
- Cross-check details with Form 26AS, Annual Information Statement (AIS), and Taxpayer Information Summary (TIS).
- Keep all supporting documents, such as receipts or bank statements, readily available.
- Report only what you can prove with evidence.
