Economic Survey 2025-26: NUDGE framework reshaping India’s tax regime with data and trust, notes CEA

The Economic Survey 2025-26 noted that a structural transformation is taking place within India's tax administration as the government pivots from post-facto enforcement to a forward-looking, technology-driven approach. The survey highlighted the adoption of the NUDGE framework, which utilises behavioural insights, data analytics, and targeted nudges to improve tax compliance and reduce both litigation and administrative friction. This strategy aims to create a more citizen-centric, efficient system that increases voluntary adherence while lowering compliance costs for taxpayers and the state alike. The shift represents a significant move towards practices already established in advanced economies, marking a new chapter for India's fiscal landscape.

The Income Tax Department has rolled out the NUDGE (Non-intrusive Usage of Data to Guide and Enable) campaign for Assessment Year 2025–26, encouraging taxpayers to voluntarily review and correct errors in their income tax returns by December 31, 2025. Using advanced data analytics, the initiative flagged mismatches such as incorrect deductions, bogus donations, high-value transactions, or unreported foreign income that do not align with AIS or Form 26AS.

NUDGE framework

The survey noted that the NUDGE initiative is producing tangible results across various compliance domains. Over 8,500 entities have revised their Tax Deducted at Source (TDS) returns, resulting in the addition of 1.08 crore deductees and recovering an additional Rs 4,825 crore in TDS. Data analytics interventions have also flagged non-genuine agricultural income amounting to over Rs 2,038 crore and capital gains exceeding Rs 33,000 crore from promoter Offer for Sale (OFS) transactions during Initial Public Offerings (IPOs), supporting the government's efforts in broadening the tax base and curbing evasion.

As detailed in the Survey, the NUDGE framework leverages non-intrusive data analysis to guide taxpayer behaviour. The approach, described as "influencing taxpayer behaviour through timely information, gentle prompts, and data-driven insights rather than coercive enforcement," stands in contrast to traditional punitive methods. This is designed to foster a culture of voluntary correction, significantly reducing the need for audits or formal investigations.

Foreign Asset Campaign

Under the Foreign Asset Campaign, nearly 25,000 taxpayers received targeted nudges to review their previous filings, with 61 per cent responding effectively. This led to the declaration of foreign assets worth more than ₹29,000 crore and foreign income exceeding ₹1,000 crore, much of which came through belated returns. The numbers indicate the effectiveness of the framework in encouraging the disclosure of previously unreported assets and incomes.

Domestic tax compliance

Domestic tax compliance has also benefited from the data-driven model. Nudges addressing excessive claims under Section 80GGC prompted over 91,000 taxpayers to file updated returns, curbing inflated deductions by nearly ₹2,050 crore and yielding an additional ₹680 crore in tax payments. Additionally, targeted interventions on House Rent Allowance (HRA) claims resulted in extra collections surpassing ₹119 crore, demonstrating the broad applicability of the framework across different taxpayer segments.

The Economic Survey underscored the NUDGE framework as a fundamental change in the nation's tax playbook. According to the Survey, "Overall, the NUDGE initiative has improved tax collection efficiency by shifting the focus from post-facto enforcement to preventive, technology-enabled compliance." This change streamlines tax administration, reduces friction and litigation, and aligns India with international trends in tax governance.

Central to this approach is the integration of large-scale data analytics, as highlighted by the Survey: "At its core, the NUDGE framework leverages large-scale data analytics to identify potential non-compliance, guide taxpayers with relevant information, and empower them to voluntarily correct or update their filings, without resorting to audits or litigation." This statement encapsulates the technological backbone of the strategy and its emphasis on empowering rather than penalising taxpayers.