For individual taxpayers, 2025 delivered a clear contrast.
The Union Budget provided meaningful relief under the new tax regime, reducing tax outgo for a large segment of salaried taxpayers. At the same time, the Income Tax Department significantly intensified data-driven scrutiny through automated alerts, reconciliation checks, and faceless assessment processes.
The result was a year where many taxpayers paid less tax in principle, but faced higher compliance effort, delayed refunds, and greater documentation requirements in practice.
What Changed in 2025
1. New tax regime became materially more attractive
Budget 2025 increased:
- The rebate under Section 87A
- The basic exemption limit
- Slabs under the new tax regime
As a result, salaried taxpayers with income up to ₹12 lakh generally have no tax liability under the new regime. After factoring in the standard deduction, the effective no-tax threshold for salaried employees rises further.
For most taxpayers with limited deductions, the new regime is now financially favourable.
However, taxpayers with higher deductions and exemptions, such as substantial HRA, home loan interest, health insurance premiums, or investments under Chapter VI-A, may still find the old regime beneficial depending on income levels and deduction quantum.
2. Increased use of automated compliance “nudges”
As the year progressed, taxpayers saw a marked increase in emails and alerts flagging discrepancies in returns filed for Assessment Year 2025–26.
These communications were driven by:
- Annual Information Statement (AIS)
- Taxpayer Information Summary (TIS)
- Form 26AS
- Form 16
- Foreign reporting mechanisms
The intent, as clarified by the department, was to encourage voluntary correction through revised or belated returns within prescribed timelines.
Areas That Attracted Scrutiny
AIS and data mismatches
One of the most common triggers was mismatch between AIS, TIS, Form 26AS, and the filed return.
In many cases:
- The same transaction appeared multiple times due to reporting by different intermediaries
- Informational entries were treated as income unless explained
- Joint property transactions reflected full value in each co-owner’s AIS
These mismatches led to automated alerts even where there was no actual understatement of income.
Foreign assets and income disclosures
Taxpayers with overseas exposure faced heightened scrutiny where:
- Foreign shares, bank accounts, ESOPs, or securities were not fully disclosed
- Dividend income from foreign investments was omitted
- Foreign Asset Schedule reporting was incomplete
Such cases were largely triggered by information received under global information exchange frameworks.
Deductions claimed directly in the return
Several salaried taxpayers received queries where deductions claimed in the return did not match those considered by employers while computing TDS.
While the law permits eligible deductions to be claimed directly in the return, such claims require:
- Proper disclosure
- Supporting documentation
- Clear reconciliation with Form 16 data
In some instances, automated notices were issued even to taxpayers who had opted for the new tax regime, highlighting the mechanical nature of initial system checks.
Who Is Most Impacted
Salaried taxpayers
Particularly those claiming deductions independently or dealing with multiple income sources.
NRIs and globally linked taxpayers
Those holding overseas assets, ESOPs, or foreign bank accounts face higher reporting visibility.
Joint asset holders
Co-owners of property or jointly held investments are more likely to receive mismatch alerts.
Taxpayers expecting refunds
Returns flagged for discrepancies often see delays until issues are resolved.
What Taxpayers Should Do Differently
1. Treat reconciliation as a mandatory step
Before filing, reconcile:
- AIS, TIS, and Form 26AS
- Form 16 and salary schedules
- Capital gains with broker and depository statements
- Interest income with bank certificates
Unreconciled data increases the likelihood of follow-up, even if tax liability is correctly computed.
2. Maintain documentation proactively
Keep organised records for:
- Rent payments and agreements
- Home loan interest certificates
- Insurance premiums
- Investment proofs
- Donation receipts
- Foreign asset and income statements, where applicable
The focus should be on being able to respond clearly and quickly if queried.
3. Respond to alerts calmly and within timelines
Automated emails should not be ignored or assumed to be errors.
Where claims are correct, a reasoned response with facts and evidence through the portal is generally sufficient. Where mistakes exist, timely revision reduces escalation risk.
What Remains Unclear
- The consistency with which automated alerts are filtered before escalation to assessment
- The extent to which human verification intervenes at early stages
- Practical transition guidance once the new Income Tax Act comes into force from 1 April 2026
Until systems mature further, some degree of over-reporting and duplication-driven scrutiny is likely to continue.
Closing Note
2025 underscored a structural shift in tax administration.
Lower rates and higher rebates are now paired with deeper data visibility and automated enforcement. For taxpayers, the safest approach is not aggressive optimisation, but accurate reporting, disciplined reconciliation, and prompt responses to system-generated queries.
This approach reduces friction, protects refunds, and limits the risk of prolonged assessments.