CBDT’s NUDGE Initiative for AY 2025-26

CBDT’s NUDGE Initiative for AY 2025-26: A Data-Driven Move to Curb Ineligible Deductions: The Central Board of Direct Taxes (CBDT) has launched a significant compliance-oriented initiative titled NUDGE (Non-intrusive Usage of Data to Guide and Encourage) for Assessment Year (AY) 2025-26. This initiative is aimed at curbing ineligible deductions and incorrect claims in Income-tax Returns (ITRs) by leveraging advanced data analytics, while simultaneously maintaining a taxpayer-friendly and non-adversarial approach.

The NUDGE initiative reflects the tax administration’s evolving strategy of promoting voluntary compliance through technology, transparency, and timely taxpayer communication, rather than post-assessment litigation.

What is the NUDGE Initiative?

The NUDGE initiative is a preventive and advisory mechanism under which the Income-tax Department uses third-party data, reporting statements, and analytics-based risk assessment to identify ITRs that may contain potentially ineligible deductions or mismatches.

Instead of immediately initiating scrutiny or reassessment proceedings, the Department proposes to alert taxpayers in advance through SMS and email communications, encouraging them to review and, if required, voluntarily correct their returns.

This initiative is part of the larger framework of “Trust-based Tax Administration” being implemented by the CBDT.

Coverage for AY 2025-26

For Assessment Year 2025-26, taxpayers whose returns reflect claims that appear inconsistent with available data may be flagged. These communications are expected to focus on commonly mis-claimed deductions, exemptions, or allowances, such as:

• Deductions under Chapter VI-A (e.g., sections 80C, 80D, 80G, etc.)
• Claims not supported by corresponding reporting in AIS/TIS
• Mismatch between income declared and deduction eligibility
• Inconsistencies with employer filings, banks, insurers, or other reporting entities

It is important to note that being flagged does not automatically mean wrongdoing; it merely indicates a need for verification.

Mode of Communication: SMS and Email Alerts

Taxpayers identified through data analytics may receive:

• SMS alerts on their registered mobile numbers
• Emails on registered email IDs linked to PAN

These communications will broadly indicate that certain claims may require verification and advise the taxpayer to review their filed return.

The communication is informational and advisory in nature, not a statutory notice under the Income-tax Act.

Time Limit to Take Action: 31 December 2025

One of the most taxpayer-friendly aspects of the NUDGE initiative is the extended opportunity to self-correct.

• Taxpayers can revise their ITR or file an updated return, wherever applicable
• The last date to take corrective action is 31 December 2025
• Voluntary revision within this window can help avoid future disputes, penalties, or prolonged litigation

This aligns with the Government’s intent to reduce avoidable scrutiny cases and improve ease of compliance.

No Action Required for Genuine Claims

A crucial clarification under the NUDGE initiative is that taxpayers with genuine, legally valid, and well-documented claims need not take any action.

If:

• The deduction is correctly claimed as per law, and
• Adequate documentation is available to substantiate the claim,

then no response or revision is required, even if a NUDGE communication is received. The initiative does not override statutory rights of taxpayers to claim legitimate deductions.

Why This Initiative is Important

The NUDGE initiative represents a paradigm shift in tax administration for several reasons:

1. Focus on Voluntary Compliance

By encouraging taxpayers to self-review and self-correct, the CBDT aims to reduce adversarial proceedings and build trust.

2. Reduced Litigation and Scrutiny

Early correction of mistakes can significantly reduce notices under sections relating to reassessment or scrutiny.

3. Data-Driven Governance

Use of AIS, TIS, and third-party reporting ensures more accurate risk identification without blanket scrutiny.

4. Certainty for Taxpayers

Taxpayers get advance visibility into potential issues rather than facing them years later during assessments.

Role of Tax Professionals and Chartered Accountants

Tax professionals play a critical role in the successful implementation of the NUDGE initiative by:

• Reviewing NUDGE communications received by clients
• Re-examining deduction eligibility under applicable provisions
• Advising on whether revision or updated return is required
• Ensuring proper documentation and record-keeping for genuine claims

Professional guidance can help taxpayers strike the right balance between compliance and assertion of lawful tax positions.

Key Takeaways for Taxpayers

• The NUDGE initiative applies to AY 2025-26
• Communications are advisory, not punitive
• Review your ITR if you receive an alert
• Revise or update the return by 31 December 2025, if required
• No action needed for correct and genuine claims
• Maintain proper documentation to substantiate deductions

Conclusion

The CBDT’s NUDGE initiative for AY 2025-26 is a welcome and progressive step towards a technology-enabled, non-intrusive, and taxpayer-centric tax system. By leveraging data analytics and providing taxpayers with an opportunity to voluntarily correct errors, the initiative aims to enhance compliance while minimizing disputes.

Taxpayers and professionals should view this initiative not as a threat, but as an opportunity to ensure accuracy, transparency, and peace of mind in tax filings.