The Income Tax Department's e-proceedings platform has become increasingly active in recent months, with taxpayers across various cities receiving communication requests for additional documentation. Reports from Hyderabad indicate that individuals are receiving SMS notifications about scrutiny proceedings, often without realizing the significance of these messages. The platform, launched in 2017 to bring efficiency and transparency to the income tax assessment process, serves as the primary channel for the department to seek clarifications and additional information from taxpayers who have filed their returns.
The scrutiny process appears to be particularly focused on specific categories of taxpayers, with Non-Resident Indians (NRIs) facing heightened attention regarding proof of employment and residency status documentation. This trend reflects the department's systematic approach to verifying the authenticity of claims made in income tax returns, especially those involving complex residency determinations and foreign income declarations. The CBDT has established specific guidelines for compulsory scrutiny cases, with notices for ITRs filed in FY 2024-25 required to be sent by June 30, 2025. The department's focus on NRI documentation stems from the inherent complexity of determining tax liability for individuals with income sources spanning multiple jurisdictions and the need to establish clear residency status for tax purposes.
What makes this situation particularly concerning for taxpayers is the ease with which critical communications can be overlooked. The Income Tax Department primarily relies on SMS notifications to alert taxpayers about e-proceedings, and these messages can easily be dismissed as spam or ignored altogether. Many taxpayers only discover pending proceedings when they log into their ITR accounts and check the e-proceedings section directly. This passive communication approach creates a risk where taxpayers might miss important deadlines or fail to respond to legitimate requests for information, potentially leading to adverse consequences in their tax assessments. The department's digital-first approach, while efficient for processing large volumes of cases, places the burden on taxpayers to actively monitor their accounts and respond promptly to any communications.
The broader context of tax compliance in India reveals a striking disparity that makes the scrutiny process even more significant. According to government data, only 1-2 percent of India's population actually pays income tax, despite more Indians filing tax returns. This extremely narrow tax base means that those who do file returns become natural targets for detailed scrutiny, as the department seeks to maximize revenue from the limited pool of compliant taxpayers. The mathematics of tax collection in India creates an environment where individuals who voluntarily file returns face disproportionate attention compared to the vast majority who remain outside the tax net entirely. This raises questions about the effectiveness of focusing scrutiny resources on existing taxpayers rather than expanding efforts to bring non-filers into the system.
The irony of the current approach becomes apparent when considering the resource allocation of the Income Tax Department. While existing taxpayers face increased scrutiny and documentation requirements, the much larger population of potential taxpayers who have never filed returns remains largely untouched. This strategy might yield immediate results in terms of additional tax recovery from known taxpayers, but it does little to address the fundamental challenge of India's narrow tax base. The department's ability to conduct detailed scrutiny of individual cases demonstrates significant investigative capacity, yet this same capacity could potentially be redirected toward identifying and bringing new taxpayers into the system. The current focus on documentation verification for employment status and residency proof, while necessary for ensuring compliance, represents a reactive approach to tax administration rather than a proactive strategy for base expansion. For taxpayers navigating this environment, the key lesson remains clear: regular monitoring of e-proceedings and prompt response to any communications has become essential, even as the broader questions about tax policy priorities continue to evolve.