Income Tax Dept clarifies emails on AIS mismatch, foreign assets are advisory, not punitive

The Income Tax Department on Thursday clarified that recent automated emails sent to taxpayers regarding transaction mismatches are purely advisory in nature and aimed at facilitating voluntary compliance, not initiating penal action.

The clarification follows concerns raised by taxpayers over system-generated intimations related to discrepancies in their Annual Information Statement (AIS), property transactions, foreign income or assets, high-value purchases such as cars, and other financial activities reported by third-party entities.

In an official statement, the department said it has received several references seeking clarity on the purpose of these communications. “Taxpayers may please note that such communication is intended to facilitate compliance and make taxpayers aware of the information available with the Income Tax Department regarding transactions reported by reporting entities during the year,” it said.

The department explained that these emails are sent only in cases where there appears to be a significant mismatch between disclosures made in the Income Tax Return (ITR) and data received from reporting entities such as banks, financial institutions, employers or foreign jurisdictions. The communication does not imply wrongdoing or immediate enforcement action.

According to the tax department, the primary objective of these advisories is to give taxpayers an opportunity to review their financial information and take corrective steps, if required. Taxpayers are encouraged to check their AIS on the income-tax portal and provide feedback through the Compliance Portal. Where necessary, they may revise their ITR or file a belated return if one has not yet been submitted.

The department also emphasised that taxpayers whose filings are accurate and complete need not take any action. “If the information reported in the return is correct, the advisory may be ignored,” it said, urging taxpayers not to panic on receiving such emails.

Importantly, the Income Tax Department reminded taxpayers that December 31, 2025 is the last date for revising an already filed return or submitting a belated return for Assessment Year (AY) 2025-26. Timely action, the department noted, can help avoid future queries or scrutiny.

Non-Filer Monitoring System

The Income Tax Department has stepped up its drive to expand the tax base by tracking high-value financial transactions carried out by individuals and entities that have not filed income tax returns, the government told Parliament.

As part of this effort, the Central Board of Direct Taxes (CBDT) has operationalised the Non-Filer Monitoring System (NMS). The system uses data analytics to identify cases where significant financial activity has taken place without corresponding tax return filings, the Finance Ministry said in a written response in the Rajya Sabha.

The NMS aggregates information from a wide range of third-party sources, including banks, financial institutions, registrars and other reporting entities. It draws on data reported through Statements of Financial Transactions (SFT), along with Tax Deducted at Source (TDS) and Tax Collected at Source (TCS) returns. By collating and analysing this information, the tax department can flag instances where large transactions may point to income that has not been disclosed.

Once identified, such cases are reviewed to determine whether income has escaped reporting despite substantial financial activity during the year. The government said the objective of the exercise is to strengthen voluntary compliance and bring more non-filers into the tax system.

Focus on nudging, not enforcement

The government stressed that the NMS follows a non-intrusive, technology-led approach and is aligned with the CBDT’s NUDGE framework—short for Non-Intrusive Usage of Data to Guide Taxpayers—aimed at encouraging compliance rather than triggering immediate enforcement action.