1. The Central Board of Direct Taxes (CBDT)’s ongoing “NUDGE” campaign to verify deductions and exemptions
The Income-tax Department has observed that certain taxpayers may have claimed ineligible refunds by reporting deductions or exemptions to which they were not entitled, leading to an understatement of income.
To address this, such taxpayers are being contacted through SMS and email under the “Non-Intrusive Usage of Data to Guide and Enable (NUDGE)” campaign. With the last date to file revised Income-tax Returns (ITRs) being 31st December 2025, the Department is encouraging taxpayers to review their returns and voluntarily correct any incorrect claims.
This initiative reflects the Department’s trust-first approach, where taxpayers are provided an opportunity to verify their deductions and exemptions and, if required, revise their ITRs within the prescribed time to avoid further scrutiny or enquiries.
Taxpayers whose deduction or exemption claims are genuine and correctly made in accordance with law are not required to take any action.
It is further clarified that taxpayers who do not revise their returns by 31st December 2025 may still file an updated return from 1st January 2026, as permitted under the law, subject to payment of the applicable additional tax.
During FY 2025–26, over 21 lakh taxpayers have already filed updated returns for AY 2021–22 to AY 2024–25, contributing more than ₹2,500 crore in taxes. Additionally, more than 15 lakh ITRs have already been revised for the current assessment year (AY 2025–26).
2. No penalty if return revised due to misunderstanding, no intent to misreport income.
This case is an important clarification on penalty under Section 270A, especially the harsh 200% penalty for “misreporting of income”.
The Delhi ITAT held that when a taxpayer makes a mistake due to a genuine misunderstanding of law, and there is no intention to hide income, penalty for misreporting should not be levied.
a) Facts of the Case
- The assessee was a salaried employee who opted for VRS from his company and received ex-gratia and other retirement benefits.
- He filed an original return declaring the full amount received, which matched employer’s Form 24Q / Form 16 data.
- Later, he filed a revised return reducing the income, believing that VRS compensation was exempt from tax.
- During scrutiny, the AO noticed that income shown in revised return was lower than employer’s TDS records, and therefore added back ₹12.61 lakhs, after allowing eligible benefits like gratuity.
- The assessee accepted the assessment order (did not file appeal), but AO imposed penalty @ 200% treating it as misreporting; CIT(A) also confirmed the penalty.
b) Judgment
The Delhi ITAT deleted the penalty and held that this was not a case of misreporting, because:
- The assessee had initially disclosed full income correctly, and the employer had also disclosed the VRS payment in TDS filings.
- The revised return was filed only due to a wrong belief, not due to any suppression or manipulation of facts.
- Once the AO pointed out the taxability, the assessee accepted the addition and did not pursue litigation, showing there was no deliberate intent.
- Since TDS was already deducted and income was originally declared, the Tribunal observed that there was no loss to revenue and no intentional under-reporting.
In such cases, it is treated as a bona fide error, not misreporting.
c) Conclusion
This ruling reassures taxpayers that penalty for misreporting (200%) cannot be levied when:
- income was originally disclosed correctly,
- revised return was filed due to a genuine misunderstanding, and
- the taxpayer cooperates and accepts correction during assessment.
3. Salary for services rendered outside India by non-resident not taxable in India as accrual depends on situs.
This case clarifies an important principle for individuals sent on short-term foreign deputation by Indian employers. The issue was whether a non-resident employee’s salary for services rendered outside India can still be taxed in India merely because the employer is an Indian company and salary is paid from India.
The ITAT Kolkata held that salary accrues where services are actually performed, and not based on where the employer is located or where payment is made.
a) Facts of the Case
The assessee was employed with IBM India Pvt. Ltd. and was deputed on a short-term assignment to the Philippines. During the year, he stayed in India for only 29 days, making him a non-resident under Section 6(1).
- Salary taxable in India declared by assessee: ₹86.91 lakhs
- Salary excluded (foreign assignment period): ₹1.14 crores
- AO’s view: since salary was paid by an Indian company from India, it accrued in India
- AO added back: ₹1,14,07,883 and taxed it in India
CIT(A) also upheld the addition, leading the assessee to appeal before ITAT.
b) Judgment
The Tribunal allowed the assessee’s appeal and deleted the addition.
- Since the assessee was a non-resident, he is taxable in India only on income received in India or accruing/arising in India under Section 5(2).
- It is a settled legal position that salary accrues at the place where services are rendered (i.e., “situs of employment”).
- In this case, the assessee performed services in the Philippines, and the AO did not bring any evidence to show services were rendered in India.
- Merely because the employer is an Indian company and salary was disbursed from India, the accrual cannot be shifted to India.
- Tribunal followed its earlier decision in DCIT vs Sudipta Maity (2018) and held the salary earned abroad is not taxable in India.
Result: Addition of ₹1.14 crores was deleted and AO was directed to allow refund.
c) Conclusion
- This decision is helpful for employees deputed abroad. It confirms that:
- If a person qualifies as a non-resident, then salary for work performed outside India is generally not taxable in India, even if:
- the employer is an Indian company, and
- the salary is paid from India.
- The key test is where the services are actually rendered, not where payment originates.
