A wave of anxiety has swept through India's taxpayer community as the Income Tax Department's recent flurry of messages and emails, demanding revised returns by December 31, has left many confused and frustrated. This communication drive, part of the department's 'NUDGE' campaign, comes alongside widespread complaints of income tax refunds being stuck for over six months, far beyond the usual 4-5 week processing time.
The Core of the Crisis: Mismatches and Ineligible Claims
The Income Tax Department attributes the delays and the subsequent outreach to a risk management framework that has identified a significant number of returns with potential discrepancies. The primary reasons cited include ineligible claims for deductions and exemptions, leading to an understatement of income, and mismatches between the information declared in tax returns (ITRs) and data received from other reporting entities.
Key red flags identified by the authorities include:
- Bogus Donations: Suspicious claims under Section 80GGC for donations to Registered Unrecognised Political Parties (RUPPs) or charitable organisations, sometimes with incorrect PAN details.
- TDS and AIS Mismatch: Discrepancies between Tax Deducted at Source (TDS) certificates and the Annual Information Statement (AIS), suggesting a higher actual income.
- Large or Ineligible Deductions: Excessive claims for deductions and exemptions, predominantly under the old tax regime.
- Non-Disclosure of Foreign Assets: Failure to report foreign bank accounts, income, or investments, as flagged by data shared with international authorities like the USA.
The Central Board of Direct Taxes (CBDT) had earlier noted action against intermediaries who filed returns with bogus claims on a commission basis. Data analytics reportedly flagged over 2 lakh taxpayers for suspicious deductions worth nearly Rs 5,500 crore.
Taxpayer Grievances and Unusual Cases
The situation has caused significant financial strain for many, especially those awaiting high-value refunds above Rs 50,000, which are under heightened scrutiny. Taxpayers have highlighted liquidity issues in meeting household expenses due to the stalled refunds.
Adding to the confusion are unusual cases. Some taxpayers who opted for the new tax regime (which has minimal deductions) also received messages. The department clarified that SMSes were sent for other discrepancies, like filing an ITR-1 for salaried income when TDS was deducted under 'professional services'. Furthermore, many complain of receiving only an SMS alert without the detailed follow-up email, leaving them clueless about the specific discrepancy and unable to respond effectively.
The proximity of the December 31 deadline, with just days left for filing revised returns, has amplified the panic. Taxpayers are now demanding an extension of this deadline.
What Should Taxpayers Do Now?
The I-T Department describes the NUDGE campaign as a 'trust-first approach', giving taxpayers a chance to voluntarily correct errors. It asserts that those with genuine and correct claims need not take any action.
Experts advise taxpayers not to panic if they have only received an SMS. A revised return (ITR-U) is necessary only if there was an incorrect disclosure of income or wrongful deduction claims. It is crucial to check the registered email for detailed communication from the department.
For those who miss the December 31 deadline for revised returns, an updated return (ITR-U) can be filed later, but it will attract an additional tax liability of 60% to 70% of the tax and interest due, depending on the delay.
The department has stated that refunds have started being issued and should reflect in accounts soon. So far, over 15 lakh revised ITRs have been filed for Assessment Year 2025-26. This episode has also reignited the debate within tax authorities about potentially phasing out the old tax regime to curb such large-scale, sometimes bogus, deduction claims.
