Income Tax Scrutiny Assessment 2026: Criteria & Response Guide

Receiving an income tax scrutiny notice can be stressful for any taxpayer. In June 2026, the Central Board of Direct Taxes (CBDT) released updated guidelines for compulsory scrutiny during FY 2026-27, introducing stricter selection criteria and clearer timelines. Whether you're a salaried individual, business owner, or professional, understanding these new rules—and knowing how to respond effectively—is crucial to avoid penalties and prolonged assessments.

This comprehensive guide explains the 6 compulsory scrutiny criteria, notice timelines under Section 143(2), the scrutiny assessment process under Section 143(3), and step-by-step response strategies to protect your interests.

What is Income Tax Scrutiny Assessment Under Section 143(3)?

A Section 143(2) notice is a formal communication sent by the Assessing Officer to a taxpayer, informing them that their Income Tax Return has been selected for detailed scrutiny assessment to ensure correct income statement, accurate tax computation, valid deductions and exemptions, and compliance with all provisions of the Income Tax Act.

A scrutiny assessment is the Income Tax Department's deep dive into your return to verify income, deductions, exemptions, TDS/TCS credit, and reporting consistency. Most cases are handled end-to-end online through the faceless assessment system and the e-Proceedings tab on the income-tax portal. You respond to questions, upload evidence, and join video hearings. The outcome is an order under Section 143(3) confirming your income or making additions.

Types of Scrutiny Assessment

Limited Scrutiny: Limited scrutiny focuses on specific issues mentioned in the notice. It is a computer-assisted scrutiny selection (CASS) where only specific issues or areas are examined. The scope is restricted to the particular issue mentioned. The assessing officer cannot go beyond the listed issues without approval from higher authorities.

Complete Scrutiny: Complete scrutiny is the full and detailed examination of your return. The entire return is thoroughly reviewed. It is usually triggered through CASS, but the examination is comprehensive rather than limited to a specific area. All claims, deductions, exemptions, and income sources are verified.

CBDT's 6 Compulsory Scrutiny Criteria for FY 2026-27

The CBDT issued Guidelines vide F.No.225/56/2026/ITA-II dated June 04, 2026 for compulsory selection of income tax returns filed during FY 2025-26 for complete scrutiny during FY 2026-27. These guidelines have been issued in pursuance of Section 536(2)(c) of the Income-tax Act, 2025.

CS-01: Survey Cases Under Section 133A

Cases of assessees in whose case a survey under Section 133A (other than Section 133A(2A)) has been conducted on or after 01.04.2024 shall be compulsorily selected for scrutiny. Such selection shall be made by the Directorate of Income-tax (Systems) with the approval of DGIT (Systems), Delhi, on the basis of information provided by the Commissioner (OSD)(Investigation), CBDT.

CS-02 & CS-03: Search and Seizure Operations

Cases involving a search under Section 132 or a requisition under Section 132A conducted between 1 April 2024 and 31 March 2026 shall be designated for compulsory scrutiny. The scrutiny proceedings shall be initiated after obtaining administrative approval from the competent authority.

CS-04: Cancelled Registrations and Exemptions

Cases where registration/approval under sections 12A, 12AB, 35(1)(ii)/(iia)/(iii), 10(23C)(iv)/(v)/(vi)/(via) has not been granted or has been cancelled/withdrawn by the Competent Authority on or before 31.03.2025, and the assessee has been found claiming tax-exemption/deduction in the return filed in ITR-7, shall be compulsorily selected for scrutiny. Cases where orders of withdrawal have been reversed/set aside in appellate proceedings shall not be selected.

CS-05: Recurring Additions from Earlier Years

Cases involving addition in an earlier assessment year on a recurring issue of law or fact where the addition exceeds Rs 50 lakh in eight metro charges at Ahmedabad, Bengaluru, Chennai, Delhi, Hyderabad, Kolkata, Mumbai and Pune or exceeding Rs 20 lakh in other cities, where this has become final will be picked up for compulsory scrutiny.

CS-06: Specific Tax Evasion Intelligence

Cases in respect of which specific information pointing out tax evasion for the relevant assessment year is provided by any law-enforcement agency, Investigation Wing, Intelligence, Regulatory Authority or Agency, and the return for the relevant assessment year has been furnished by the assessee, shall be compulsorily selected for scrutiny.

Important Clarification: CBDT has clarified that returns filed in response to notices under Section 142(1) based solely on NMS, AIS, SFT, CPC-TDS or Directorate of I&CI information will not automatically qualify for compulsory scrutiny unless covered under this category. These cases will be acknowledged via the Computer Assisted Scrutiny Selection (CASS) process.

Timeline for Scrutiny Notice Under Section 143(2) in 2026

Notice under Section 143(2) must be issued within 3 months from the end of the financial year in which the return was filed. This is a critical statutory deadline.

Example: ITR filed for AY 2026-27 (FY 2025-26) by 31 July 2026 → last date to issue notice under 143(2) is 30 June 2027.

For categories CS-05 and CS-06, jurisdictional assessing officers must prepare and submit lists of eligible cases. The consolidated lists are required to be forwarded to the Directorate of Income-tax (Systems) by 15 June 2026.

For the current cycle, the time limit for service of notice under Section 143(2) for ITRs filed in the Financial Year 2025-26 is 30.06.2026.

How to Respond to Income Tax Scrutiny Notice Under Section 143(2)

If you receive a scrutiny notice, prompt and accurate response is essential. Here's your step-by-step action plan:

Step 1: Read the Notice Carefully

Confirm your details – PAN, Assessment Year, and Assessing Officer. Understand the reason for the notice and note the deadline for response.

Step 2: Log in to the Income Tax Portal

Log in using your PAN, password, and any required OTP. Ensure you access the correct taxpayer dashboard. Go to 'Pending Actions' or 'e-Proceedings' and locate the specific scrutiny notice.

Step 3: Gather Required Documents

The Assessing Officer typically requests:

• Income Proof: Salary slips, Form 16, bank statements, profit & loss statements, balance sheet
• Deduction Proofs: Section 80C investments (LIC, PPF, ELSS), Section 80D health insurance premiums, home loan interest certificates
• TDS Documents: Form 26AS, TDS certificates, Annual Information Statement (AIS)
• Capital Gains: Sale deeds, purchase agreements, brokerage statements for shares/property
• Business Records: GST returns, invoices, stock registers (for business/professional income)

Use our Form 26AS / TDS Fetch Tool to quickly download your TDS records and match them with your ITR. For capital gains calculations, the Capital Gain Calculator helps you compute accurate tax liability.

Step 4: Upload Documents and Submit Response

Gather all documents that support your case. Organize them according to the issues raised in the notice. Upload scanned copies (PDFs) of all required documents via the portal in the specified format.

Step 5: Attend Video Hearing (If Required)

You can and should request a video hearing where warranted. Your reply should include counter-computations, law, and facts—plus any case-law you rely on.

Step 6: Wait for Assessment Order

After submission, the Assessing Officer will review your documents. You may receive an acceptance, a request for more info, or a notice for further scrutiny under Section 143(3).

Timeline for Completing Scrutiny Assessment Under Section 143(3)

The duration allowed for completing a scrutiny assessment varies: For AY 2017-18 or earlier, the scrutiny must be concluded within 21 months. For AY 2018-19, within 18 months. For assessment years from 2019-20 onwards, the scrutiny assessment must be completed within 12 months after the end of the assessment year.

Example Timeline for AY 2025-26:

Generally, an assessment order under Section 143(3) must be passed within 12 months from the end of the Assessment Year. For AY 2025-26, the assessment order must typically be passed by March 31, 2027. Timelines can be extended in specific circumstances, such as when the case is referred to Transfer Pricing Officer, or for search assessments.

Faceless Assessment and National Faceless Assessment Centre (NaFAC)

These matters must be managed via the National Faceless Assessment Centre (NaFAC), with underlying documents uploaded through the jurisdictional assessing officers. The entire scrutiny assessment, from the initial notice to the final order, is conducted without direct physical interaction between the taxpayer and the Assessing Officer. This aims to reduce discretion and enhance transparency. The assessment order is based entirely on the digital submissions, documents, and explanations provided by the taxpayer during the e-proceedings.

Exception: Cases handled by International Taxation and Central Charges may also be selected with prior administrative approval. Such cases will continue to be handled by the respective jurisdictions and will not be transferred to the National Faceless Assessment Centre (NaFAC).

Consequences of Ignoring a Scrutiny Notice

Failing to respond to a Section 143(2) notice carries serious consequences:

• You may be subject to a penalty of Rs.10,000 under Section 272A for each failure to respond
• The assessment officer may close the assessment with the information he has with best judgment under Section 144. A higher taxable income can be considered, resulting in a higher tax and penalty payable
• If you choose to dispute the higher tax demand, a minimum of 20% of the tax due must be paid before you file an appeal. It may lead to prosecution; if found guilty, it may result in imprisonment

Common Reasons for Scrutiny Selection

Beyond the 6 compulsory criteria, cases may be selected through CASS for:

• Issues arise when TDS is deducted at a lower rate than the assessee's tax slab. Transactions significantly higher than the income declared can lead to scrutiny, such as extensive deposits in bank accounts that don't correspond with the reported income. Such transactions are often reported to the tax department by banks and other financial institutions
• High-Value Transactions: Large cash deposits, property purchases, foreign remittances
• Mismatch in Income: Differences between Form 26AS, AIS, and ITR
• Excessive Deductions: Disproportionate claims under Section 80C, 80D, or business expenses
• GST vs. ITR Mismatch: Turnover reported in GST returns not matching ITR figures

Use the Income Tax Calculator to verify your tax liability and ensure all income is correctly reported.

Your Rights During Scrutiny Assessment

Taxpayers undergoing scrutiny under Section 143(2) have specific rights. They can appoint a qualified representative (like a CA) to handle scrutiny proceedings. They also have the right to explain and justify their return through evidence and arguments. Tax authorities must follow due process, treating taxpayers respectfully and without harassment, as per the Taxpayers' Charter.

Scrutiny notices must be issued within 3 months after the end of the financial year, or they can be challenged. Notices must clearly state the reason for scrutiny and list the required documents.

Key Changes in Budget 2026 Affecting Assessments

Several income tax changes took effect from 1st April 2026. One of the most significant change is the introduction of 'tax year' concept. Financial year and assessment year has now been merged into a tax year, streamlining the tax assessment period with global standards.

The Income Tax Act 2025 will be effective from 1st April 2026 applicable for FY 2026-27 onwards. The new Income Tax Act will replace the existing Income Tax Act, 1961, entirely with simplified language and the removal of redundant provisions. It aims to simplify taxation, ensure easier compliance and reduce legal disputes.

While personal income tax slabs and rates remain unchanged for FY 2026-27, several compliance oriented measures have been introduced including extending the deadline for revised returns from 31 December to 31 March of the assessment year, and introducing staggered return filing deadlines, with salaried taxpayers filing by 31 July and non audit business taxpayers by 31 August.

Pro Tips to Minimize Scrutiny Risk

• File ITR on time: Late filing increases scrutiny chances
• Match all sources: Reconcile Form 26AS, AIS, and your records before filing
• Maintain complete documentation: Keep invoices, bills, receipts for at least 6 years
• Report all income: Including small interest income, freelance earnings, rental income
• Disclose high-value transactions: Property sales, large investments, foreign assets
• Avoid disproportionate claims: Ensure deductions are proportionate to income
• Use correct ITR form: Filing the wrong form triggers notices

For salaried individuals, the HRA Calculator helps accurately claim house rent allowance exemptions, while business owners can use the Bank Statement Analyser to organize financial records before ITR filing.

Frequently Asked Questions

What is the time limit for issuing a scrutiny notice under Section 143(2) in 2026?

The notice under Section 143(2) must be issued within 3 months from the end of the financial year in which the return was filed. For returns filed during FY 2025-26, the last date to issue the scrutiny notice is June 30, 2026, as per CBDT Notification F.No.225/56/2026/ITA-II dated June 4, 2026. This is a statutory deadline and notices issued after this date can be legally challenged.

What are the 6 compulsory scrutiny criteria announced by CBDT for FY 2026-27?

CBDT has identified 6 compulsory scrutiny categories: (CS-01) Survey under Section 133A conducted on or after April 1, 2024; (CS-02) Search under Section 132 or requisition under Section 132A between April 1, 2024 and March 31, 2026; (CS-03) Reassessment cases pending by March 31, 2027; (CS-04) Cancelled registrations under Sections 12A, 12AB, 35(1), 10(23C) by March 31, 2025; (CS-05) Recurring additions exceeding ₹50 lakh in metro cities or ₹20 lakh in other cities; (CS-06) Specific tax evasion information from law enforcement agencies.

What is the difference between limited scrutiny and complete scrutiny under Section 143(3)?

Limited scrutiny focuses only on specific issues mentioned in the notice, such as TDS mismatch, high-value transactions, or particular deductions. The Assessing Officer cannot expand the scope without approval. Complete scrutiny involves a comprehensive examination of the entire ITR including all income, deductions, exemptions, investments, and disclosures. Complete scrutiny is typically triggered for high-risk cases or those falling under compulsory scrutiny criteria set by CBDT.

Will AIS, SFT, or Form 26AS mismatches automatically lead to compulsory scrutiny?

No. CBDT has clarified that returns filed in response to notices under Section 142(1) based solely on NMS, AIS, SFT, CPC-TDS, or Directorate of I&CI information will not automatically qualify for compulsory scrutiny. These cases will be processed through the Computer Assisted Scrutiny Selection (CASS) cycle instead, unless they fall under CS-06 category involving specific tax evasion information from enforcement agencies.

How long does the Assessing Officer have to complete a scrutiny assessment under Section 143(3)?

For assessment years from AY 2019-20 onwards, the scrutiny assessment must be completed within 12 months from the end of the assessment year in which the income was first assessable. For example, for AY 2026-27, the assessment order under Section 143(3) must typically be passed by March 31, 2027. This timeline may be extended in specific cases involving Transfer Pricing references or Dispute Resolution Panel proceedings.

Conclusion

The CBDT's scrutiny guidelines for FY 2026-27 bring clarity and structure to the assessment process, focusing on high-risk cases while providing relief to routine taxpayers. Understanding the 6 compulsory criteria, statutory timelines, and your rights during scrutiny empowers you to respond effectively and avoid unnecessary penalties. Remember, the June 30, 2026 deadline for Section 143(2) notices is critical—any notice issued after this date for FY 2025-26 returns can be challenged.

Whether you're facing a scrutiny notice or want to ensure compliance, maintaining accurate records, timely filing, and complete disclosure are your best defenses. For assistance with tax calculations, TDS reconciliation, and ITR preparation, explore our comprehensive suite of TaxFetch Tools designed specifically for Indian taxpayers.