Taxman knows more than you think: Here's why clean ITR filing matters

From rent fudging to hidden income, the tax department's digital dragnet is tighter than ever, mistakes can cost big. Here's how to stay safe this ITR season with clean, accurate filing.

Some taxpayers underreport income or inflate deductions in order to save money that goes to the government. But experts warn that this is a high-stakes gamble in today’s data-driven tax environment. With the Income Tax Department now armed with sophisticated tools and deep access to financial information, from your bank transactions and property deals to your stock market activity, there’s little room to hide.

 

Taxman’s eyes everywhere: What the department already knows

 

“The Income Tax Department gets financial data from multiple channels, banks, mutual funds, employers, registrars, and more,” says Suresh Surana, charter accountant.

 

This includes:

• TDS/TCS details from Form 24Q/26Q 
• High-value transactions under the Statement of Financial Transactions (SFT) 
• Integrated PAN-linked records from property sales, share investments, and foreign remittances 
• Salary, rent, capital gains, and GST data through the Annual Information Statement (AIS) and Form 26AS

   

According to Kinjal Bhuta, secretary of the Bombay Chartered Accountants’ Society, the department also uses “AI tools, regulatory data-sharing, and even social media activity” to detect suspicious patterns.

   

Common mistakes (and misdeeds) that can trigger trouble

From fudging rent receipts to ignoring side income, many taxpayers, especially salaried and self-employed, unknowingly (or knowingly) cross the line.

 

“False Section 80C claims, hiding freelance income, or underreporting cash sales are frequent issues,” says Sudhir Kaushik, chief executive officer of TaxSpanner. Surana adds that claiming deductions without valid proofs or routing business income through personal accounts is another red flag.

 

Bhuta also warns against “non-disclosure of foreign assets, ignoring bank interest, or assuming that TDS alone covers tax obligations.”

 

Penalties can be steep, even jail time

Taxpayers caught misreporting face penalties under Section 270A:

 

50 per cent of tax due for underreporting

 

200 per cent if it’s deemed wilful misreporting

 

“In extreme cases,” says Surana, “Section 276C can trigger prosecution with jail up to seven years if tax evasion exceeds Rs 25 lakh.”

 

Kaushik concurs, “With AIS and digital tracking, ignorance is no longer a valid excuse.”

 

Staying safe: Honest filing starts with these steps

 

Experts say the best protection is vigilance.

 

Cross-check prefilled ITRs with your Form 16, AIS and TIS

 

Report all income salary, capital gains, FD interest, foreign income

 

Correct mismatches, if any, and maintain proof for deductions

 

“Even exempt income like agricultural earnings should be disclosed,” says Bhuta.

 

TaxBuddy’s founder, Sujit Bangar adds, “AIS should be your checklist. If a transaction appears there, explain or report it.”

 

In short, clean filing is no longer optional, it’s critical.

 

As Kaushik puts it, “Tax transparency is tighter than ever. The best strategy is to stay ahead by being accurate.”