HRA, capital gains, foreign assets: How tax nudges helped govt mop up over Rs 30,000 crore without raids
HRA, capital gains, foreign assets: How tax nudges helped govt mop up over Rs 30,000 crore without raids – Money News | The Financial Express
The Economic Survey 2025-26 showed how India’s tax system is moving away from raids and penalties towards “nudging compliance”. Using data-driven prompts, the Income Tax Department encouraged taxpayers to correct HRA claims, disclose capital gains and report foreign assets voluntarily.
HRA, capital gains, foreign assets: How tax nudges helped govt mop up over Rs 30,000 crore without raids (Image: AI generated)
As the government gears up for the Union Budget 2026-27, the Economic Survey 2025-26 has highlighted a quiet but important shift in India’s tax administration.
The focus is no longer only on scrutiny, audits or penalties. Instead, the tax system is increasingly relying on “nudging compliance” — a softer, data-driven approach that encourages taxpayers to voluntarily correct mistakes and pay the right tax.
For honest taxpayers, this shift matters. It reduces friction, lowers the risk of litigation, and makes compliance simpler and less intimidating.
What does ‘nudging compliance’ mean?
According to the Economic Survey, nudging compliance is anchored in behavioural economics. Under this approach, the Income Tax Department uses timely information, gentle prompts and data insights to influence taxpayer behaviour, instead of coercive enforcement.
The Survey explains that the NUDGE framework—Non-intrusive Usage of Data to Guide and Enable—relies on large-scale data analytics to flag possible mismatches or errors. Taxpayers are then informed and given a chance to voluntarily revise or update their returns, often without audits or legal action.
In simple terms, the system assumes error or lack of information, not bad intent.
Foreign asset disclosures rise after nudges
One of the clearest examples cited in the Economic Survey is the Foreign Asset Campaign. Nearly 25,000 taxpayers were nudged to revisit their tax filings after data showed possible non-disclosure.
More than 61% responded positively, revising their returns. This led to the declaration of foreign assets worth over Rs 29,000 crore and foreign income exceeding Rs 1,000 crore. A significant part of this came through belated returns, showing that taxpayers were willing to come clean when gently prompted.
The Survey notes that this outcome was achieved without aggressive enforcement.
Wrong deductions corrected, more tax paid
The nudging strategy also helped correct excessive or incorrect claims under Section 80GGC. Over 91,000 taxpayers filed updated returns after receiving data-based nudges.
As a result, excessive deductions were reduced by nearly Rs 2,050 crore, and additional tax payments of over Rs 680 crore flowed into the system.
Similarly, targeted nudges on incorrect House Rent Allowance (HRA) claims led to additional tax collections of more than Rs 119 crore.
For taxpayers, this meant fewer future notices. For the government, it meant faster and cleaner revenue collection.
Better TDS reporting through data
Nudging compliance is not limited to individual taxpayers. The Economic Survey shows that data-driven prompts improved third-party reporting as well.
More than 8,500 deductors revised their TDS returns, adding over 1.08 crore deductees to the tax system. This brought in additional TDS of nearly Rs 4,825 crore, improving both collections and data accuracy.
Spotting fake claims without raids
The Survey also highlights how analytics helped identify non-genuine agricultural income of Rs 2,038.02 crore from 310 entities. It further flagged capital gains of Rs 33,057.28 crore earned through Offer for Sale (OFS) transactions by promoters during IPOs.
These were identified through data matching and behavioural tools, not post-facto enforcement.
Why this matters to taxpayers
The Economic Survey underlines that nudging compliance shifts tax administration from after-the-event action to preventive, technology-led compliance. It reduces litigation, lowers compliance costs and builds trust between taxpayers and the system.
By combining data, behavioural insights and transparent communication, the Survey says nudge-based administration is a modern, efficient and citizen-centric way of mobilising revenue.
As Budget 2026-27 approaches, this behind-the-scenes reform may not grab headlines like tax cuts—but for taxpayers, it could quietly make compliance easier, fairer and less stressful.
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