The Economic Survey for FY 2025-26 pointed out how data-driven behavioral interventions improved tax collection efficiency in India, resulting in an extra Rs 119 crore collected thanks to targeted nudges about incorrect House Rent Allowance (HRA) claims
Rs 119 crore recovered from wrong HRA tax deduction claims, 25000 filed revised ITRs to declare Rs 1000 crore foreign income; Here’s how Nudge campaign works – The Economic Times
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The Economic Survey for FY 2025-26 pointed out how data-driven behavioral interventions improved tax collection efficiency in India, resulting in an extra Rs 119 crore collected thanks to targeted nudges about incorrect House Rent Allowance (HRA) claims.
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The Economic Survey said: “Targeted nudges led to a reduction in incorrect House Rent Allowance (HRA) claims, resulting in additional tax collections of over Rs 119 crore.”
What is Nudge?
Based on behavioural economics, the NUDGE (Non-intrusive Usage of Data to Guide and Enable) approach adopted by the Income Tax Department this financial year, focused on influencing taxpayer behaviour through timely information, gentle prompts, and data-driven insights rather than coercive enforcement.
At its core, the NUDGE framework leverages large-scale data analytics to identify potential non-compliance, guide taxpayers with relevant information, and empower them to voluntarily correct or update their filings, without resorting to audits or litigation.
How Nudge exposed incorrect income tax deduction claims
Foreign asset and income
The Economic Survey said that the Foreign Asset Campaign Nudge prompted nearly 25,000 taxpayers to revise their income tax returns (ITR), with over 61 per cent responding positively to nudges.
This resulted in the declaration of foreign assets worth over Rs 29,000 crore and foreign income exceeding Rs 1,000 crore, a significant portion of which was through belated returns.
80GGC- Political party donation
Similarly, nudges related to deductions under Section 80GGC led to a large-scale correction of claims, with over 91,000 taxpayers filing updated returns, a reduction of excessive deductions by nearly Rs 2,050 crore, and additional tax payments of over Rs 680 crore.
Also read: CBDT flags bogus claims on political and charitable donations
TDS return filing and non-genuine agricultural income
Data-driven nudges also improved third-party reporting and accuracy in TDS filings.
More than 8,500 deductors revised their TDS returns, adding over 1.08 crore deductees and bringing additional TDS of nearly Rs 4,825 crore into the system. The tool also helped to identify non-genuine agricultural income of Rs 2,038.02 crore from 310 entities and capital gains of Rs 33,057.28 crore earned through Offer for Sale (OFS) by promoters during Initial Public Offers (IPOs).
Overall, the NUDGE initiative has improved tax collection efficiency by shifting the focus from post-facto enforcement to preventive, technology-enabled compliance. It has reduced friction, litigation, and compliance costs for both taxpayers and the administration, while increasing revenue through voluntary means.
By combining data, behavioural insights, and transparent communication, NUDGE-based tax administration represents a modern, efficient, and citizen-centric approach to revenue mobilisation.
Sandeepp Jhunjhunwala, Partner at Nangia Global, said that statistics around additional income tax collections on account of positive responses on data driven nudge campaigns pertaining to foreign assets, Section 80GGC (political party) and HRA claims as well as TDS filings discovering non-genuine agricultural income and capital gains earned through offer for sale by promoters during initial public offers, showcase how these technology-driven reforms could be made trusted drivers to expand the tax base and enable a sustained growth in tax collection.”
Archit Gupta, Founder & CEO, ClearTax, said to ET Wealth Online: “By tightening the compliance on deductions and rationalizing capital gains tax: LTCG at 12.5% and STCG at 20%, the government has fundamentally re-engineered how taxpayers think. The math has changed.” According to Gupta, paying a predictable tax on market gains is now more attractive than donating capital just to reduce taxes.
Gupta says: “This shift is a major win for the economy, as capital that was once locked in ‘tax-saving’ schemes is now flowing into the capital markets, deepening our financial system and driving productive growth.”
How to make correct HRA claims?
Chartered Accountant Suresh Surana says that it is broadly correct that HRA is unique in the sense that it does not carry a fixed monetary ceiling like Section 80C (Rs 1.5 lakh) or Section 80D. However, this does not mean that HRA is unlimited in absolute terms. The exemption is strictly restricted to the least of the following:
- (i) The amount of house rent allowance received, or
- (ii)50% of salary* in case of employees residing in the four metro-cities (Mumbai, Kolkata, Chennai, New Delhi excluding NCR region – Gurgaon, Noida and Faridabad) and 40% of salary in case of employees residing in other cities, or
- (iii)Excess of rent paid over 10% of the salary due for the relevant period.
Surana says: “Salary for the purpose of this clause includes basic salary, dearness allowance (if provided in the terms of employment) and commission as a percentage of turnover achieved by the employee.”
Therefore, the exemption is inherently capped by salary structure, rent paid, and location.
Example –
- Annual Salary: Rs. 18,00,000
- City: Mumbai (Metro)
- Basic Salary: Rs. 7,20,000
- Dearness Allowance: Rs. 1,80,000
- HRA received: Rs. 3,60,000
- Actual rent paid: Rs. 4,50,000 per year
The HRA exemption u/s 10(13A) would be least of the following:
| Particulars | Amount (Rs) |
| 1. Actual HRA received | 3,60,000 |
| 2. Rent paid – 10% of salary | 4,50,000 – 90,000 = 3,60,000 |
| 3. 50% of salary (Metro) | 50% × 9,00,000 = 4,50,000 |
The total tax liability would be as follows:
| Particulars | Old Regime | New Regime |
| Gross Salary | 18,00,000 | 18,00,000 |
| Less: Standard Deduction | (50,000) | (75,000) |
| Les: HRA Exemption | (3,60,000) | – |
| Net Salary/ Total Taxable Income | 13,90,000 | 17,25,000 |
| Less: Deduction u/s 80C | (1,50,000) | – |
| Less: Mediclaim Premium u/s 80D | (25,000) | – |
| Taxable Income | 12,15,000 | 17,25,000 |
| Total Tax Liability | 1,84,080 | 1,50,800 |
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