March 27, 2025 | New Delhi: With the income tax Department (ITD) using AI-driven risk assessment systems, The Tax scrutiny in FY 2025-2026 is set to become much more aggressive than ever.
Through real-time data analytics, the government has boosted efforts to detect tax evasion, targeting undisclosed income, false deductions, and high-value transactions.
Recent reports suggest that the ITD is issuing automated tax notices based on the PAN Card-linked financial activity of users, raising concerns for salaried individuals, freelancers, independent workers, and business owners alike.
AI & Big Data to Power Tax Monitoring in 2025
The CBDT, the full name of which is Central Board of Direct Taxes, has improved its AI-based scrutiny system. It enables real-time tracking of ITR Filings.
Any mismatch in declared income, unexplained cash flow, unknown pattern of income, or incorrect deductions could result in a tax notice under Section 143(1) or a full-fledged investigation under Section 147 of the Income Tax Act.
“The ITD now cross-verifies your ITRs with bank records, your GST filings, and all credit card statements. Any inconsistency can trigger scrutiny, even if unintentional,” said a senior income tax official on condition of anonymity.
Top 7 High-Risk ITR Mistakes That Can Lead to Scrutiny in 2025
Let’s explore the ITR mistakes one by one. One of the important ones is –
1. Mismatched Income Between ITR & AIS Statement
From the start of 1 April 2025, the ITR will use machine learning algorithms (like Data Integration and Management software) to compare current ITRs with past filings.
News source: NDTV profit.
Any major deviations—such as a sudden dip in declared income or unexplained deductions- can trigger an investigation.
What experts say:
“The Income Tax Department’s risk assessment model flags ITRs with inconsistencies across financial years. Discrepancies in declared income often result in reassessment notices.”
— Kunal Savani, Partner, Cyril Amarchand Mangaldas Indian Law Firm (source: Economic Times)
2. Unreported High-Value Transactions
The ITD tracks high-value financial activities to detect potential tax evasion. Not reporting the following transactions can lead to an automated tax notice:
- If your Cash deposits exceed ₹10 lakh per year
- Credit card payments above ₹1 lakh per month can lead to notice.
- Stock market transactions over ₹1 lakh
- Property purchases above ₹30 lakh
3. Filing Under the Wrong ITR Form
As per the reports, Many salaried taxpayers incorrectly file ITR-1 instead of ITR-2 when they have capital gains, multiple income sources, or foreign assets. These types of errors increase the chance of an audit under section 139 (9).
4. Inflated Deductions & Fake Rent Receipts
If Allegations of exaggerated deductions under Sections 80C, 80D, or HRA exemptions have become a high-risk zone. This new AI-powered fraud detection engine will promptly flag anything that is mismatched or not verifiable.
“The IT department is actively rejecting fake rent receipt claims, and violators may face penalties,” warns a Finance Ministry official.
Source: Zee Business News
5. Non-Disclosure of Freelance, Crypto, or Rental Income
Also, Taxpayers who fail to report earnings from freelancing, crypto trading, or rental properties face an increased risk of tax reassessment under Section 148.
6. Unusually High TDS Refund Claims
The ITD, OR Income Tax Department, has started closely reviewing tax refund claims, particularly when multiple refunds are processed under the same details of PAN-linked email or phone number.
7. Late or Non-Filing of ITR
The ITD has put into action the automatic notices under Section 142(1) of the Income Tax Act. Such notices are directed to non-filers to warn them against penalty and reassessment.
so,
How to Avoid ITR Scrutiny in 2025
To prevent tax scrutiny, errors, and audits, taxpayers should focus on:
- Please always match income details in AIS, Form 26AS & ITR
- Avoid claiming deductions without proper proof and real data.
- Report ALL income sources, including freelancing & capital gains
- Use the correct ITR form based on income type
- File taxes before the deadline to avoid penalties
Yes! With AI-powered tax surveillance software and systems, the Income Tax Department is leaving no room for errors in 2025. Taxpayers must ensure complete accuracy in their returns to avoid unnecessary scrutiny and penalties.
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