Who May Face Income Tax Scrutiny in FY 2026-27? CBDT Issues Fresh Guidelines for Complete Scrutiny

The Central Board of Direct Taxes (CBDT) has released the guidelines for the compulsory selection of Income Tax Returns (ITRs) for complete scrutiny during Financial Year (FY) 2026-27. The new framework lays down the categories of taxpayers who are more likely to receive scrutiny notices and aims to bring greater consistency and transparency to the tax assessment process.

While the guidelines apply to returns filed under the Income-tax Act, 1961, they have been issued under the enabling provisions of the Income-tax Act, 2025, which will govern future tax administration.

The CBDT has clarified that these are compulsory scrutiny cases, meaning the Income Tax Department will select them irrespective of the regular risk-based selection process.

Why has CBDT issued Income Tax scrutiny guidelines for FY2026-27?

Every year, the CBDT prescribes parameters for selecting certain income tax returns for detailed examination. The objective is to identify cases involving potential tax evasion, under-reporting of income, ineligible exemptions or significant compliance risks while ensuring uniformity across tax offices.

Complete scrutiny allows the Income Tax Department to examine all aspects of a taxpayer's return, including income, deductions, exemptions, expenses and supporting documents. The key categories are for the complete scrutiny during FY 2026-27 are explained below . 

1. Taxpayers surveyed under Section 133A

One of the major categories covered under the FY 2026-27 guidelines includes taxpayers whose premises were surveyed under Section 133A of the Income-tax Act, 1961 on or after April 1, 2024.

Section 133A empowers income tax authorities to conduct surveys at business or professional premises to verify tax compliance, inspect books of accounts and collect relevant information.

However, surveys conducted under Section 133A(2A) have been excluded from compulsory scrutiny under these guidelines.

2. Search and seizure cases under Sections 132 and 132A

The CBDT has also included cases involving search operations under Section 132 or requisition proceedings under Section 132A initiated on or after April 1, 2024.

These provisions allow tax authorities to search premises, seize assets, books of accounts and documents, or requisition such material from other government agencies where there is evidence of undisclosed income or assets. Such cases will automatically qualify for complete scrutiny.

3. Reassessment cases under Sections 148 and 143(2)

The guidelines also cover certain reassessment cases. Where a notice has been issued under Section 148 for income escaping assessment, and the case relates to:

• Search action initiated between April 1, 2021 and August 31, 2024, or

• Survey action conducted on or after April 1, 2021,

The Jurisdictional Assessing Officer may issue a notice under Section 143(2) for complete scrutiny.

Section 148 is invoked when the Income Tax Department has credible information suggesting that taxable income has escaped assessment or was under-reported.

4. Trusts and institutions claiming tax exemptions

The CBDT has also tightened scrutiny for charitable trusts, religious institutions and other organisations claiming tax exemptions.

Cases involving entities claiming benefits under provisions such as Sections 12A, 12AB and other registration or approval-based exemptions will be selected for complete scrutiny if:

• Registration or approval was not granted, or

• It was cancelled or withdrawn by the competent authority on or before March 31, 2025,

and the entity has claimed exemption while filing its return for FY 2025-26, including through ITR-7.

5. Cases involving recurring additions

Another important category relates to taxpayers who have faced substantial tax additions in earlier assessment years.

According to the CBDT, compulsory scrutiny will apply where additions have become final or have been upheld by appellate authorities in favour of the Revenue and exceed:

• ₹50 lakh in the eight metropolitan cities, or

• ₹20 lakh in other parts of the country.

The objective is to examine whether similar issues continue in subsequent years.

6. Information received from law enforcement agencies

The CBDT has also directed compulsory scrutiny in cases where specific information regarding tax evasion has been received from any law enforcement or government agency for the relevant assessment year, provided the taxpayer has filed a return for that year.

Such information may originate from agencies investigating financial fraud, money laundering or other economic offences.

Technology continues to drive income tax scrutiny compliance 

The latest complete income tax scrutiny guidelines come as the Income Tax Department increasingly relies on technology and data analytics to improve compliance.

The department now matches information from multiple sources, including Annual Information Statements (AIS), Taxpayer Information Summary (TIS), Form 26AS, GST records, banks, stock exchanges, mutual funds and property registries, to identify mismatches between reported income and financial transactions.

This data-driven approach has significantly improved the accuracy of case selection while reducing manual intervention.

According to the Income Tax Department, India received a record 9.19 crore income tax returns for FY2025, reflecting continued growth in tax compliance and digital filing.

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What happens during complete Income Tax scrutiny?

During complete scrutiny, the Income Tax Department may seek detailed explanations and supporting documents relating to:

• Income reported in the return

• Business expenses and deductions

• Capital gains

• Exemptions claimed

• High-value financial transactions

• Bank statements

• Property transactions

• Investments and loans

Taxpayers are generally required to respond through the Income Tax Department's e-Proceedings portal, reducing the need for physical interaction with tax officials.