This small TDS error could trigger an ITR investigation! Here's why it might raise a red flag

The Income Tax Department has introduced fresh scrutiny guidelines for Assessment Year 2025–26. These are part of a broader effort to reduce tax evasion by matching declared income with actual financial behaviour. Here's what taxpayers need to know:

One of the key triggers for scrutiny this year is an incorrect or inflated TDS claim. If the TDS mentioned in the ITR does not match what is reflected in Form 26AS or AIS, the return may be flagged for further review. Taxpayers must cross-check these details before submitting their return.

The tax department is using data analytics to flag cases where individuals show low income but have significant spending patterns, such as luxury purchases, foreign travel, or property investments. These cases are being prioritised for investigation.

Transactions such as credit card spends over Rs 10 lakh, property purchases above Rs 30 lakh, or cash deposits exceeding Rs 2 lakh are being closely monitored. These are now matched with reported income to identify inconsistencies.

New scrutiny rules apply automatically in specific cases:

• Tax surveys (Section 133A) will lead to compulsory review.
• Search and seizure cases conducted between April 2023 and March 2025 will be scrutinised.
• Repeated undeclared income of over Rs 50 lakh in metros or Rs 20 lakh in non-metros will invite investigation.
• Inputs from agencies like CBI or ED may also result in scrutiny.

Mistakes such as not disclosing FD or savings interest, making unsupported exemption claims, or omitting income from assets held in the names of spouses or children can prompt investigation. Under Section 64, income from such assets is taxable in the hands of the person who invested the money.

Scrutiny is now data-driven. The department analyses bank activity, investment history, and lifestyle patterns. A mismatch between lifestyle and income may attract attention, even if no direct errors are present in the return.

Taxpayers are advised to:

• Reconcile Form 26AS, AIS, and bank records.
• Report all sources of income honestly, including minor interest amounts.
• Maintain clear records of cash transactions, especially for business income.
• Disclose sources of income for high-value or luxury spending.
• The 2025 ITR scrutiny framework reflects a shift toward integrated financial monitoring. Taxpayers should take extra care to ensure accuracy and transparency to avoid unwanted notices.