The Assessment Year 2025–26 has brought a major shift in how income tax scrutiny is conducted in India. With more surveillance, better analytics, and digital assessments, the Income Tax Department is intensifying its scrutiny process. Gone are the days when only high-profile or suspicious returns were scrutinized. Now, even minor oversights or certain activities—like being subject to a survey or claiming exempt income under a canceled registration—can result in your return being automatically flagged.
The Central Board of Direct Taxes (CBDT) issued new guidelines on June 13, 2025, which apply to all taxpayers—whether salaried employees, business owners, trusts, or charitable organizations. In this detailed guide, we'll break down everything you need to know about the ITR Scrutiny Rules 2025, including:
- Who’s most likely to get selected
- The exact compulsory scrutiny triggers
- What to expect if flagged
- How to protect yourself
- Answers to frequently asked questions
What Is ITR Scrutiny and Why Does It Matter?
Income Tax Return (ITR) scrutiny is a process in which your tax return is selected for a detailed assessment by the Income Tax Department to verify the correctness of the declared income, deductions, exemptions, and tax payments. It is handled under Section 143(2) of the Income Tax Act, 1961.
There are two types of scrutiny:
- Compulsory Scrutiny – Triggered based on specific rules notified by CBDT.
- CASS (Computer-Assisted Scrutiny Selection) – Based on algorithmic risk profiling.
Why it matters:
- A flagged return could result in reassessment, penalties, or interest on unpaid taxes.
- Non-compliance or delayed response can lead to prosecution under income tax laws.
- It causes mental stress, financial burden, and impacts your creditworthiness.
Key Highlights of the CBDT Guidelines (June 2025)
The CBDT circular clearly outlines specific scenarios where scrutiny is compulsory. These include:
- ITRs linked to search and seizure
- Taxpayers subject to survey under Section 133A
- Unregistered entities claiming exempt income
- Returns with recurring disallowances
- Intelligence-based alerts or third-party reports
The guidelines aim to bring transparency and uniformity in scrutiny selection and avoid arbitrary or biased assessments. Additionally, all assessments will be conducted through the faceless assessment system, ensuring fairness and eliminating harassment.
The 6 Compulsory Triggers for Scrutiny in 2025
Search and Seizure Cases (Section 132)
If a search or requisition action has taken place under Section 132/132A during April 1, 2023, to March 31, 2025, scrutiny is mandatory. Even if the search happened in another entity and your name appears as “other person”, your return will still be scrutinized.
Survey Cases (Section 133A)
If your premises (residential or business) were subject to an income tax survey, you’re automatically under the radar. Even if the survey didn’t find anything wrong, the mere fact that a survey took place post-April 1, 2023, warrants scrutiny.
ITR-7 and Invalid Exemption Claims
Trusts, NGOs, and institutions filing ITR-7 who claimed exemption under Sections 12A, 12AB, or 10(23C) but:
- Don’t have valid registration
- Whose registration was cancelled before March 31, 2024
will be automatically selected for scrutiny, unless an appellate authority reversed the cancellation.
Repetitive Additions/Disallowances in Past Assessments
If the same legal or factual issue was added back or disallowed in previous assessments and:
- The amount exceeds ₹50 lakhs in metro cities or ₹20 lakhs in other cities
- The addition has been confirmed in appeal
- The issue has reached finality
Then scrutiny will be mandatorily initiated for the current year.
Specific Information or Intelligence Input
Taxpayers flagged based on credible external information—such as:
- Suspicious transactions reported by banks
- Data from GST, ED, FIU, or SEBI
- Whistleblower complaints
- AIS or SFT mismatches
are subject to immediate scrutiny.
Notices Must Be Issued Before June 30, 2025
The timeline to issue a notice under Section 143(2) is June 30, 2025. If no notice is issued by then, the return cannot be scrutinized compulsorily.
CASS Selection: Separate from Compulsory Triggers
While compulsory scrutiny is rule-bound, CASS (Computer-Assisted Scrutiny Selection) focuses on:
- Unusual refunds
- High-value transactions (e.g., property sales, crypto gains)
- AIS and 26AS mismatches
- Large discrepancies in income vs. expenditure
The Faceless Assessment Process: What to Expect
All scrutiny cases—compulsory or CASS—are now handled through the faceless e-assessment system, which means:
- No physical visits
- No face-to-face meetings
- No territorial jurisdiction
Steps in faceless assessment:
- Notice under Section 143(2) sent via email or SMS
- Taxpayer replies via e-filing portal
- Assessment Unit reviews submissions
- Draft order shared; taxpayer may respond or appeal
- Final assessment passed digitally
How Many Returns Are Likely to Be Checked in 2025?
- Over 1.65 lakh cases selected for checking in AY 2025–26
- Roughly 60% of notices issued are linked to compulsory rules
- Around 40% through CASS, focusing on HNIs and high-value non-filers
Red Flags That May Trigger Checking
| Red Flag | Why It’s Risky |
|---|---|
| Big donations with no matching receipts | NGO exemption misuse |
| Disproportionate business losses | Used to evade taxes |
| Frequent refund claims | Could be fabricated |
| Undeclared foreign income/assets | Black Money Act violations |
| Cash deposits after elections or demonetization | Triggers investigation |
| High TDS mismatch with income | False or underreported salary |
What to Do If You Receive a Notice
- Log in to the Income Tax Portal
- Go to “e-Proceedings”
- Download and read the notice
- Gather documents (Form 16, invoices, GST, bank statements)
- Respond clearly—preferably with help of a CA
What If You Don’t Respond?
- Best judgment assessments under Section 144
- Penalty of ₹10,000 per default
- Possible prosecution under Section 276D
- Deductions may be rejected
- Refunds or losses can be blocked
How to Stay Safe
- File before due date
- Match income with Form 26AS & AIS
- Reconcile all incomes, TDS, bank accounts
- Avoid fake losses or over-reporting expenses
- Keep documents ready
- Report crypto or foreign earnings properly
FAQs – Frequently Asked Questions
Q1. Can salaried employees also get flagged for checking?
Yes, if they claim too many deductions or have mismatches.
Q2. Is checking the same as reassessment?
No. Reassessment happens later if income is found to be hidden.
Q3. How do I know if my ITR is being checked?
You will get a notice on your portal and email under Section 143(2).
Q4. Can I revise my ITR after getting notice?
No. You cannot revise the return once notice is sent.
Q5. What if I don’t reply?
You may face penalties, blocked refunds, and even jail.
Q6. Will checking affect my credit score?
Not directly. But tax dues can hurt your financial standing.
Conclusion
The New ITR Scrutiny Rules for AY 2025–26 are stricter, smarter, and more data-driven than ever before. While the goal is improved tax compliance, even honest taxpayers may find themselves under scrutiny due to procedural triggers. Understanding the rules, keeping documentation ready, and responding timely will help you sail through any scrutiny smoothly. Remember, compliance is your best protection.
Report by Toofan Express