CBDT Guidelines on Mandatory Scrutiny of ITRs for FY 2025–26

Introduction

The Central Board of Direct Taxes (CBDT) has issued detailed guidelines for the compulsory selection of Income Tax Returns (ITRs) for complete scrutiny during the financial year 2025–26. These guidelines apply to returns filed in FY 2024–25 (Assessment Year 2025–26).

Unlike routine risk-based selection, these rules mandate automatic scrutiny for specific categories of taxpayers that have historically been linked to higher risks of tax evasion. This includes search and survey cases, invalid exemption claims under ITR-7, and recurring disputed issues. Returns falling under these categories will undergo full scrutiny, even if no red flags are triggered by standard data analytics.

In this article, we cover:

The six categories of cases selected for compulsory scrutiny
The legal provisions supporting these rules
Key implications for taxpayers
Timelines, procedures, and compliance requirements

What Is ‘Compulsory Scrutiny’ Under Income Tax?

Compulsory Scrutiny refers to the mandatory selection of certain income tax returns for detailed examination under Section 143(2) of the Income-tax Act, 1961, based on predefined legal or factual triggers—not AI-based risk profiling.

This differs from Computer-Assisted Scrutiny Selection (CASS), which uses data analytics to identify potentially risky returns. In compulsory scrutiny, selection is rule-driven and automatic.

Once selected:

A notice under Section 143(2) is issued
The taxpayer must submit documents, records, and explanations online
Proceedings are conducted under the Faceless Assessment Scheme
A final assessment order is passed based on submissions and evidence

Legal Provisions Empowering Compulsory Scrutiny

The CBDT derives authority from multiple provisions of the Income-tax Act, including:

Section 143(2) – Issuance of scrutiny notice
Section 132 – Search and seizure
Section 132A – Requisition of books or documents
Section 133A – Survey proceedings
Sections 12A, 12AB, 10(23C) – Exemptions for charitable/religious institutions
Section 92CA – Transfer pricing and international transaction scrutiny

Categories of Compulsory Scrutiny for FY 2025–26

As per CBDT guidelines, the following six categories of returns will be mandatorily selected for scrutiny:

1. Survey-Based Cases (Section 133A)

If a survey was conducted on or after 1 April 2023, the corresponding return will be selected for complete scrutiny.

Implication: Even if the return appears compliant, a full examination is mandatory.

2. Search and Requisition Cases (Sections 132 & 132A)

Returns linked to searches or requisitions conducted between 1 April 2023 and 31 March 2025 will be scrutinised.

Key Points:

Applies to all connected persons and entities
For searches conducted on or after 1 September 2024, scrutiny is limited to AY 2025–26 only

3. ITR-7 Filers Claiming Exemptions Without Valid Registration

Returns filed in ITR-7 will face scrutiny if exemptions under Sections 12A, 12AB, or 10(23C) are claimed despite:

Registration not being granted
Registration being cancelled or withdrawn by 31 March 2024
No appellate relief reversing such cancellation

This mainly affects charitable trusts, NGOs, and exempt institutions.

4. Recurring Additions Confirmed in Appeal

Scrutiny applies where:

Similar additions were made in earlier years
The additions were upheld by appellate authorities
The disputed amount exceeds:
- ₹50 lakh in metro cities
- ₹20 lakh in non-metro areas

This includes transfer pricing disputes and other recurring legal or factual issues.

Example:
If a claim consistently disallowed in past years and upheld by ITAT or the High Court is made again, the return will be scrutinised.

5. Intelligence-Based Tax Evasion Alerts

Returns flagged due to credible inputs from intelligence, regulatory, or law enforcement agencies will be selected for scrutiny.

This may involve alerts related to:

Undisclosed foreign income
Benami transactions
Bogus deductions or donations
GST and income-tax data mismatches

6. Time Limit for Issuance of Scrutiny Notices

For returns filed in FY 2024–25, notices under Section 143(2) must be issued on or before 30 June 2025. Any notice issued after this date is invalid.

Procedure for Scrutiny

Once an Income Tax Return is selected for compulsory scrutiny, the assessment process follows a structured and faceless procedure:

Issue of Notice (Section 143(2))
The Income Tax Department issues a notice to the assessee seeking explanations and supporting documents for the return filed.
Online Submission of Responses
The taxpayer must submit the required documents, details, and clarifications through the Income Tax e-filing portal within the prescribed timelines.
Faceless Assessment
The scrutiny is conducted under the Faceless Assessment Scheme, ensuring no physical interaction, enhanced transparency, and uniform application of law.
Passing of Assessment Order
After evaluating the submissions and evidence, the assessing authority issues the final assessment order electronically.

Summary of Compulsory Scrutiny Categories and Notice Types

Sl. No.	Case Type	Criteria	Applicable Notice
1	Survey-Based Cases	Survey conducted under Section 133A on or after April 1, 2023	Notice u/s 143(2)
2	Search & Requisition Cases	Searches under Section 132 or requisitions under Section 132A between April 1, 2023 and August 31, 2024	Notice u/s 143(2) or 142(1)
3	Search/Requisition (Post-Sept 2024)	Searches conducted on or after September 1, 2024; scrutiny limited to AY 2025–26	Notice u/s 143(2)
4	ITR-7 with Invalid Exemption Claims	Exemption registrations under Sections 12A/12AB/10(23C)/80G not granted, cancelled, or withdrawn by March 31, 2024 but still claimed in ITR-7	Notice u/s 143(2)
5	Recurring Additions	Repeated additions upheld on appeal exceeding ₹50 lakh (metros) or ₹20 lakh (non-metros)	Notice u/s 143(2)
6	Tax Evasion Alerts	Specific intelligence inputs from law enforcement or regulatory agencies	Notice u/s 143(2)

Time Limit for Issuance of Notice under Section 143(2)

For Income Tax Returns filed during FY 2024–25 (AY 2025–26), the Income Tax Department must issue scrutiny notices under Section 143(2) on or before June 30, 2025. Any notice issued after this date will be legally invalid, and the return cannot be taken up for scrutiny.

What the New Scrutiny Guidelines Mean for ITR Filing in FY 2025–26

The CBDT’s revised scrutiny framework signals a shift from routine return processing to a more stringent, evidence-based compliance regime. Accuracy, documentation, and consistency are now more critical than ever.

For Individual Taxpayers

Reconcile all income and tax details with Form 26AS, AIS (Annual Information Statement), and TIS (Taxpayer Information Summary) before filing.
Avoid assumptions—declare only income and deductions that can be fully supported by documentation.
Maintain proper records for all income sources and deductions, even if total income is below ₹10 lakh.
Stay prepared for scrutiny, as selection may arise from intelligence inputs or past compliance history.

For Businesses and Corporates

Expect documentation-intensive assessments—retain detailed records for all significant transactions.
Ensure consistency across accounts, finance, and compliance teams to prevent reporting mismatches.
Proactively address recurring issues from earlier assessments that have been upheld on appeal.
Engage tax professionals early to prepare for potential scrutiny and draft robust responses.
Treat ITR filing as a high-risk compliance activity, where precision and defensibility are essential under the new scrutiny norms.

Action Checklist for Assessees

To stay prepared for scrutiny and avoid compliance issues, ensure you have completed the following steps:

Review prior assessment orders to identify any recurring issues or additions upheld in earlier years
Verify that all exemption claims are supported by valid and active registrations
Maintain documentary evidence for high-value deductions, exemptions, and income disclosures
Regularly monitor emails and SMS alerts from the Income Tax Department for notices under Section 143(2)
Respond promptly and accurately to all queries raised on the e-filing portal
Consult a tax advisor early for matters involving litigation, complex transactions, or potential disputes

About the Author

Ravi

Ravi translates complex legal requirements into clear, actionable guidance, helping entrepreneurs stay compliant and build sustainable businesses with confidence.

January 8, 2026