The Income Tax Department of India regularly examines certain income tax returns in detail to ensure that taxpayers are reporting their income and deductions correctly without hiding anything from the tax authorities. For the financial year 2025-26, the Central Board of Direct Taxes (CBDT) has issued new guidelines in which they have clearly specified the situations in which a taxpayer’s return will be compulsorily selected for scrutiny. These guidelines are important because they give taxpayers clarity about which cases will be examined by the Income Tax Department, the legal provisions behind such selection of cases, and what steps the taxpayers should take to avoid unnecessary hindrance with the tax authorities.
In this blog, we will cover:
- What compulsory scrutiny means
- Categories of cases selected for FY 2025-26
- The legal provisions that empower such scrutiny
- What these rules mean for individuals and businesses
- Actions taxpayers should take to remain compliant
What is Compulsory Scrutiny?
Compulsory scrutiny means that certain income tax returns are selected automatically for detailed examination, regardless of whether they have triggered any computer-based risk filters. This is different from the Computer Assisted Scrutiny Selection (CASS) system, which uses data analytics and risk-based algorithms to select cases randomly or based on mismatches.
When a return is selected for compulsory scrutiny:
- A notice under Section 143(2) of the Income Tax Act, 1961, is issued to the taxpayer.
- The taxpayer needs to submit the required documents and explanations online through the income tax portal.
- The assessment is carried out under the Faceless Assessment Scheme – meaning no physical meetings with tax officers.
- Based on the evidence provided, the tax department issues a final assessment order.
Categories of Cases for Compulsory Scrutiny for the FY 2025-26
The CBDT has specified six broad categories where scrutiny will be mandatory for the financial year 2025-2026:
1. Survey-based cases – Section 133A of the Income Tax Act, 1961
If the tax department has conducted a survey of your business on or after 1 April 2023, your Income Tax Return for that financial year will be scrutinised. A survey usually involves officers visiting the business premises to inspect accounts, stock, or cash. Even if nothing unusual is found, the law requires the return to be checked in detail.
2. Search and Seizure / Requisition Cases – Sections 132 & 132A of the Income Tax Act, 1961
If a search (raid) or requisition for books/documents has taken place on or between the following:
- Between 1 April 2023 and 31 August 2024: The relevant Income Tax Returns will automatically be selected.
- On or after 1 September 2024: The scrutiny of ITRs will apply only for the assessment year 2025-26.
It covers cases where the department suspects hidden income or assets and carries out search operations.
3. Taxpayer filing the ITR-7 Return and claiming exemptions without a valid registration
This applies mainly to:
- Charitable trusts
- Religious institutions
- NGOs
- Scientific research institutions
If such entities:
- do not have valid registration under Sections 12A, 12AB, 10(23C), or 80G of the Income Tax Act, 1961, OR
- Their registration was cancelled on or before 31 March 2024, but they still want to claim tax exemption in their ITR-7 for the AY 2025-26.
Then the Income Tax Return of such entities will be compulsorily scrutinised.
4. Recurring additions in previous assessments
If during the initial years, the Income Tax Department made additions to your taxable income on the same issue, such as disallowing certain expenses or treating income as taxable, and the issue was upheld in appeal, and the amount involved is ₹50 lakh or more in metro cities or ₹20 lakh or more elsewhere,
Then, if the same issue appears again in your current return, it will be selected for scrutiny.
This includes Transfer Pricing (TP) disputes and other recurring issues.
5. Information from Law Enforcement or Regulatory Agencies
If the department receives credible information about tax evasion from any of the following:
- Investigation wing
- Enforcement Directorate
- SEBI
- GST authorities
- Other intelligence agencies
Then your return will be scrutinised, even if it otherwise looks normal.
Exclusions from compulsory scrutiny
Not all cases flagged for discrepancies are covered under compulsory scrutiny.
For example, if you filed your return in response to a notice under Section 142(1) of the Income Tax Act, 2961 triggered due to non-filing alerts, AIS/SFT mismatches, or TDS issues, such cases will not fall under compulsory scrutiny. Instead, they will be processed under CASS. This helps the department focus only on serious, high-impact cases.
Guidelines for Taxpayers
These guidelines mark a shift towards targeted, intelligence-based enforcement.
For Individuals
- Proof of ITR: Keep the proof of your previously filed Income Tax Returns.
- Check data: Make sure that your Income Tax Return matches the data in Form 26AS, Annual Information Statement, and Taxpayer Information Summary.
- Keep proofs ready: For deductions like Section 80C, 80G of the Income Tax Act, 1961 and high-value expenses.
- Avoid over-claiming: Do not claim exemptions unless you are legally eligible.
For Businesses
- Maintain clear books of accounts and reconcile them regularly.
- Address recurring disputes from earlier years.
- Ensure valid registrations for exemptions and deductions.
- Keep documentation for all major transactions.
Conclusion
The CBDT’s compulsory scrutiny guidelines for FY 2025-26 make it clear that the tax department’s focus is on high-risk, high-value, and repeat-offence cases. For genuine taxpayers, this means less random scrutiny and more predictable enforcement – but also zero tolerance for inaccurate reporting.
If your case falls into any of the listed categories, be proactive:
- Keep your documentation ready.
- Ensure your claims are legally valid.
- Maintain full transparency in your returns.
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