Gyaan Ganga 40 – What the Government Already Knows About Your Income
This Gyaan Ganga explains what all information the IT department has about the assessee and the sources. It also discusses on ways by which you can identify your incomes in their records.
The tax department doesn’t just wait for you to file your return. It is already watching.
Every year, millions of taxpayers believe they can quietly omit rental income, underreport interest or forget mutual fund gains. What they don’t realise is that the Income Tax Department has built has built a strong system to collect financial information from various sources. This guide covers exactly what tax authorities already know about you before you file your ITR.
The Annual Information Statement (AIS) & Form 26AS
Introduced in November 2021, the AIS goes far beyond the older Form 26AS (Section 285BB of Income Tax Act 1961 / Section 263 of Income Tax Act 2025). It consolidates data from dozens of reporting entities and presents the department with a comprehensive financial picture:
| Income / Transaction Type | Source of Reporting |
| Salary income | TDS returns filed by Employer |
| Interest from savings / FDs / RDs | Banks |
| Dividend income | Companies / Mutual Funds |
| Securities & mutual fund transactions | Depositories, stock exchanges, AMCs |
| Immovable property (sale/purchase) | Sub-registrar via SFT |
| Foreign remittances | Authorised dealers |
| GST turnover | GSTN (cross-referenced with ITR) |
| Rent received | Tenant TDS under Section 194-I, HRA Claim |
When you file your ITR, the system automatically flags mismatches with AIS data, triggering the e-Verification scheme and potentially a scrutiny notice.
Tax Deducted at Source (TDS) — A Real-Time Income Tracker
Every payer making certain payments must deduct tax at source and report it to the department before you even file your return. Every deductor files quarterly TDS Returns (Form 24Q / 26Q / 27Q), which feed directly into your Form 26AS and AIS. Department expects inclusion of such transactions, on which TDS is deducted, to form part of your total income while filing returns.
Statement of Financial Transactions (SFT) — High-Value Reporting
Under Section 285BA of 1961 Act / Section 262 of 2025 Act, specified entities must report high-value transactions. This is perhaps one of the most significant information-gathering mechanisms available to the Income-tax Department.
| Reporting Entity | Threshold / Transaction |
| Banks (savings accounts) | Cash deposits ≥ ₹10 lakh in a financial year |
| Banks (current accounts) | Cash deposits ≥ ₹50 lakh |
| Banks (credit cards) | Cash payments ≥ ₹1 lakh; any mode ≥ ₹10 lakh |
| Sub-registrar | Purchase/sale of property ≥ ₹30 lakh |
| Mutual Funds | Purchase of units ≥ ₹10 lakh |
| Companies / institutions | Bonds, debentures or share acquisition ≥ ₹10 lakh |
| Foreign exchange dealers | Foreign currency sale/purchase ≥ ₹10 lakh |
| Crypto platforms | Specified digital asset transactions |
All these transactions are linked to your PAN. The system checks whether these transactions match the income you have reported.
PAN-Aadhaar Linkage — Closing the Identity Gap
Mandatory under section 139AA of 1961 Act / Section 515 of 2025 Act, PAN-Aadhaar linkage has closed long-exploited loopholes. Your PAN is now your complete financial identity, seeded across:
| Financial Account / Asset | Consequence of Missing / Invalid PAN |
| All bank accounts | Higher TDS under— up to 20% |
| Demat & brokerage accounts | Transaction trail created automatically |
| Mutual fund folios | SFT reporting triggered |
| Property registration documents | Sub-registrar reports transaction |
| EPF, NPS, insurance (>₹50k premium) | Aadhaar-seeding mandatory |
Capital Gains — The SEBI–IT Department Pipeline
If you trade in shares or mutual funds, every transaction is already known. Depositories (NSDL/CDSL) and exchanges (NSE/BSE) report all transactions via SFT under Section 285BA. Entities also deduct TDS on mutual fund unit dividend distribution under Section 194K (Section 403, 2025 Act). The department pre-populates approximate STCG and LTCG figures in your AIS; any ITR mismatch is flagged automatically. Switching between schemes within the same fund house, or redemptions across multiple AMCs, are captured in a single unified view by agencies such as CAMS.
Foreign Income & Assets — FEMA and FATCA
Residents must disclose foreign assets and income under Schedule FA of the ITR. Non-disclosure may attract consequences under the Black Money (Undisclosed Foreign Income and Assets) Act, wherever applicable.
India participates in two key international frameworks:
| Framework | How it works | Coverage |
| FATCA | US-India IGA: foreign institutions report Indian residents’ accounts to IRS, which shares with CBDT | US-held accounts of Indian residents |
| CRS (OECD) | 100+ countries auto-exchange financial account data annually | Singapore, UAE (from 2023), UK, most of Europe |
The Risk Management System — The Algorithm That Selects You
The CBDT’s centralised Risk Management System (RMS) and CASS (Computer Aided Scrutiny Selection) identify returns for scrutiny. The system looks for warning signs such as:
| Risk Signal | What It Indicates |
| AIS vs ITR mismatch | Undisclosed / under-reported income |
| Unusual deductions vs income level | Inflated or bogus claims |
| High cash transactions, low declared income | Cash-based income suppression |
| Year-on-year income drop + high spending | Income diversion or concealment |
| SFT transactions but no ITR filed | Non-filer with financial activity |
Beyond Algorithms — Specialised Surveillance Units
The Income Tax Department does not rely on automated systems alone. Dedicated cells actively monitor lifestyle and spending patterns that may be inconsistent with declared income:
| Surveillance Area | What the Department Does With It |
| Credit Card Spending & Foreign Travel | Banks report credit card payments above ₹10 lakhs. Airlines and travel data also tracked. Compared with the income reported in your tax return. Large differences may lead to further enquiries. |
| Luxury Goods Purchase (jewellery, luxury watches, high-end vehicles etc.) | Large purchases that do not match your reported income may lead to enquiries about the source of money used. |
| Agricultural Income Verification | Assessing officers verify (using Satellite imagery, Google Maps and state-level agricultural income filings) whether claimed land is cultivable and productive. |
| Inoperative PAN & Dormant Accounts | Such transactions remain on record and may be examined when the PAN becomes operative again or during future assessments. |
Inter-Department Data Sharing – One Transaction, Multiple Sources of Information
Today, different government departments and regulatory authorities routinely share information with each other. This allows the Department to compare data reported across various systems and identify significant differences that may require an explanation.
For example:
- Turnover reported in GST returns may be compared with the income and receipts disclosed in the ITR.
- Import and export transactions recorded through ICEGATE (Indian Customs EDI Gateway) may be matched with GST records and business income reported in the ITR.
- Information filed with the Ministry of Corporate Affairs (MCA), such as directors’ details, shareholding patterns, financial statements and related party transactions, may also be compared with income-tax disclosures.
Early Warning System
Before issuing notices in many cases, the Department may give taxpayers an opportunity to explain certain transactions through the Compliance Portal or by providing feedback on entries appearing in the Annual Information Statement (AIS).
Conclusion: Compliance Is No Longer Optional
The Indian tax administration has undergone a quiet revolution. Today’s assessments are increasingly data-driven rather than document-driven. The best approach is to report your income correctly, check your records carefully and make complete disclosures.
As a CA, our advice is clear: do not file a return in defiance of what your AIS shows. Reconcile every figure. Disclose fully. If there are genuine differences — errors in TDS reporting or transactions that don’t belong to you, use the formal AIS portal feedback mechanism to submit corrections.
— TEAM CVOCA
This publication is for awareness and education only. Please consult your chartered accountant, or legal advisor for decisions specific to your situation.