CBDT issues compulsory scrutiny guidelines for income tax returns

The income tax department has issued guidelines for compulsory scrutiny of income tax returns for FY26 which include cases of trusts, institutions, or entities claiming exemptions whose registrations or approvals were denied, cancelled, or withdrawn by March 31, 2025, high value cases of substantial additions as well as those with verified information on tax evasion apart from routine cases of search and seizure.

As per law, the time limit for service of notice for detailed scrutiny under Section 143(ii) of the Income Tax Act, 1961 of income tax returns filed in 2025-26 is June 30, the Central Board of Direct Taxes said in the guidelines for compulsory scrutiny.

 “Cases where registration /approval under various sections of the said Act, such as section 12A, 12AB, 35(1)(ii)/(iia)/(iii), 10(23C)(iv)/(v)/ (vi)/(via) etc., (i) have not been granted or have been cancelled/withdrawn by the Competent Authority on or before March 31, 2025 and, the assessee has been found to be claiming tax-exemption /deduction in the return filed in ITR-7, However, where such orders of withdrawal of registration /approval have been reversed/set-aside in appellate proceedings, those cases will not be selected under this parameter,” said the CBDT with regard to trusts, institutions, NGOs and those undertaking research and development and claiming income tax exemptions.

Further, cases involving addition in an earlier assessment year on a recurring issue of law or fact of law where the addition is over Rs 50 lakh in eight metro charges at Ahmedabad, Bengaluru, Chennai, Delhi, Hyderabad, Kolkata, Mumbai and Pune or exceeding Rs 20 lakh in other cities, where this has become final will also be picked up for compulsory scrutiny.

Similarly, cases backed by specific, verified information indicating tax evasion received from law enforcement, intelligence, or regulatory agencies would also be taken up by the tax officials for scrutiny. The CBDT has however clarified that routine compliance cases from automated data analytics, AIS, SFT, NMS, or CPC-TDS flags will not be selected unless they satisfy the specific tax-evasion criteria.

For international taxation, the same guidelines for compulsory scrutiny will be applicable. However, they will remain outside the faceless assessment regime and would continue to be handled by the International Taxation and Central Circle charges, the CBDT said.

Scrutiny guidelines are issued annually by the income tax authorities to ensure that tax returns are in line with actual income.

Manish Garg, Partner-Tax, AKM Global said that in line with the previous years’ theme, these guidelines also signal a continued move towards targeted, risk-based assessments rather than broad based scrutiny. “This year’s framework is particularly taxpayer friendly, as it clearly excludes routine data mismatches flagged through AIS or analytics unless backed by credible evidence of tax evasion,” he noted, while cautioning that mismatch cases can still be taken up for limited scrutiny by tax department.

“From a litigation perspective, this should help reduce unnecessary disputes. At the same time, taxpayers falling within specified high-risk categories such as search, survey, or recurring addition cases should be prepared for deeper examination and ensure their documentation and positions are robust and consistent,” he said.

For FY27, the CBDT has a direct tax target of Rs 26.97 lakh crore. Of this the mop-up from corporate tax is estimated at Rs 12.31 lakh crore, from income tax at Rs 13.92 lakh crore and from securities transaction tax at Rs 73,700 crore.

The department has also come out with a plan for improvement in direct tax collection this fiscal and has identified Rs 2.57 lakh crore of demands fully confirmed by the CIT (Appeals) in FY26 that can be recovered.