Income tax scrutiny, FY 2026-27

The new circular

Every year around the start of June, the Central Board of Direct Taxes (CBDT) publishes a short, dry circular that tax professionals read closely and almost nobody else does. It lists the situations in which an income tax return will be compulsorily selected for “complete scrutiny”, the deep document-by-document examination of a return, as opposed to the automated processing every return goes through.

This year's circular, F.No.225/56/2026/ITA-II dated 4 June 2026, carries one genuinely new thing. It is the first such circular issued under the Income-tax Act, 2025, which replaced the 1961 Act from 1 April 2026. It is also the era in which the “Assessment Year” label gives way to the “Tax Year” for periods from 2026-27 onward. The machinery is being renamed and rebuilt. The obligation on you, to be able to prove what you earned and what you filed, has not changed at all.

The circular matters less for the rules it sets than for the question it should prompt every taxpayer to ask. If my return were opened tomorrow, could I produce the evidence behind every number on it? For most people the honest answer is no. This article walks through who the new rules actually target, the larger door they do not mention, and the simple habit that turns a scrutiny notice from a crisis into a non-event.

Who gets picked

The FY 2026-27 circular names six situations in which a return must be taken up for complete scrutiny. These are not risk scores or probabilities. If your case falls in one of these buckets, selection is automatic.

For returns filed during FY 2025-26 and selected under these categories, a notice under section 143(2) must be served on or before 30 June 2026.

Read that list honestly and one thing stands out. These are high-risk situations: surveys, searches, reassessments, defaulting trusts, large repeat disputes, enforcement tip-offs. If you are a salaried professional, a returning NRI, or a small business owner who files on time and pays what is due, you are very unlikely to fall into any of the six. The compulsory list is not where most ordinary taxpayers should be looking.

The bigger door

Here is the part the circular does not dwell on, because it is not its subject. The six compulsory categories are not the only way a return gets scrutinised. The far larger channel for ordinary taxpayers is CASS, Computer-Assisted Scrutiny Selection: a risk engine that scores every filed return against parameters the department deliberately does not publish, and picks a sample for examination each year.

CASS is fed by the same data lakes that power the rest of the system. The Annual Information Statement (AIS), Form 26AS, Statements of Financial Transaction filed by banks and registrars, CRS and FATCA reports from foreign tax authorities. A mismatch between what those sources report and what your return declares is exactly the kind of signal that raises a risk score. A large foreign dividend that does not appear in Schedule FA. A property sale the AIS knows about but the return does not explain. A TDS credit that does not reconcile.

The compulsory categories tell you who the department must examine. CASS decides who else it chooses to, and it will never publish the rules. You cannot manage your odds. You can only manage your readiness.

This is the crucial mental shift. Trying to predict whether you will be selected is a losing game, because the criteria are non-public and the data-matching is automated and relentless. The only variable you actually control is whether, on the day a notice lands, you can produce what it asks for.

Same demand, either way

Whichever door selects you, what happens next is almost identical, because nearly all scrutiny today is faceless. There is no officer to visit, no file to carry. You receive an electronic notice through the e-proceedings portal, and you are given a window, often as short as 15 days, to upload documentary evidence supporting the items under question. Miss the window or upload nothing usable, and the assessing officer proceeds on the information already held, which generally means an addition to your income and a demand for tax, interest and possibly penalty.

Even the gentlest touch from the system asks the same fundamental question as a full scrutiny: show us the document behind this number. An automated section 143(1) intimation that flags a TDS mismatch, or a demand notice for a small reconciliation difference, both want the same thing. The scale differs. The shape does not.

And the documents a faceless assessment asks for fall into three layers, the full chain of how a number came to be on your return.

• Income proofs, what was paid to you. Salary slips, Form 16, brokerage and dividend statements, ESOP and RSU vesting records, rent receipts, foreign income statements, interest certificates.
• Tax documents, what you filed. The ITR itself, the computation, Form 26AS, the AIS, challans and acknowledgements.
• Tax workings, how you got to the number. Your capital gains computation, the HRA calculation, the 80C breakdown, the foreign tax credit and DTAA workings.

The first layer comes from employers, banks and brokers. The second the portal keeps a copy of. The third, the workings, nobody keeps but you. Your CA may have used a computation to file, but the underlying logic, the supporting figures, the year-by-year reconciliation, all of that is yours to preserve. When a scrutiny lands three or seven years later, the workings are the layer most people have already lost.

Document hygiene

Strip away the legal vocabulary and the entire problem reduces to one habit. Keep your own income proofs, filings and workings, organised by financial year, for as long as the law can reach back. Do that, and a scrutiny notice becomes an afternoon of uploading files you already have. Skip it, and the same notice becomes weeks of begging banks for old statements, chasing a former employer's HR team, and rebuilding a capital gains computation from memory.

A practical, year-by-year checklist for a salaried or NRI taxpayer:

• Form 16 and monthly salary slips, the proof behind your salary income.
• Brokerage and dividend statements, Indian and foreign, downloaded the day they become available, because broker portals purge old years.
• ESOP and RSU grant and vesting statements, which HR portals often delete after you leave.
• Rent receipts and the landlord's PAN if you claim HRA, plus the HRA working itself.
• Foreign income and withholding statements (1042-S, 1099, P60, W-2 and equivalents) and the Form 67 foreign tax credit working behind any DTAA relief you claimed.
• Capital gains computations, one per year you sell anything, showing purchase price, sale price, holding period and the net gain.
• Your filed ITR, computation, Form 26AS and AIS for every year, backed up by you, not left only on the portal.

How long is long enough? The timeframes are set by law, and they were rewritten as recently as 2024.

One rule covers every case. If you hold a foreign asset now, or have ever held one, your records must reach back to the year you first held it, because there is no upper limit under the Black Money Act. For everything domestic, treat six years after the relevant year as the floor, not the ceiling. We walk through one such nine-year-lookback case in detail in the income proofs nobody keeps for you.

The private layer

The catch is where all of this lives. A folder on your current laptop vanishes at the next device refresh. A Google Drive folder is not organised by financial year, is not end-to-end encrypted, and was never meant to be a legal archive. Email search is triage, not a vault. And the two official systems people assume have their back, DigiLocker and the Income Tax portal, hold your identity and your filings respectively, but never your salary slips, your broker statements, or your workings.

The FY 2026-27 circular is, in the end, a reminder rather than a warning. It confirms what the system already does every day. It watches, it cross-matches, and when it asks, it asks for documents. You cannot control whether it asks. You can decide, today, to be the person who simply has the answer ready.

Disclaimer. This article summarises CBDT circular F.No.225/56/2026/ITA-II dated 4 June 2026 and related law for general information. It is not legal or tax advice. Scrutiny categories, thresholds and deadlines are as reported at publication. Consult a qualified chartered accountant for your specific situation.

Source: CBDT, Guidelines for compulsory selection of returns for complete scrutiny during the Financial Year 2026-27, F.No.225/56/2026/ITA-II, dated 4 June 2026, issued under section 536(2)(c) of the Income-tax Act, 2025.