When Data Speaks Louder Than Returns: Your Next Steps as a Taxpayer (Part 2)

 

If you read last Monday’s column, you already know how Nagpur’s data-driven drive unfolded – missing land-record entries, invisible cooperative-bank deposits, benami properties owned by people who didn’t even own proper footwear, and refund claims that deserved a bravery award. The idea was never to praise or criticise what happened. It was to highlight a simple reality: the era of “If it’s not in AIS, the Department doesn’t know” is now over. What began in Nagpur is no longer restricted to Nagpur. Similar exercises have started appearing in other cities, and even State departments are studying how such data-driven methods can improve governance. The tax environment has changed, tax rates are lower than what earlier generations groaned under, and voluntary transparency is now the only real insurance.

But before we move to what taxpayers should do now, one basic question must be addressed – because hundreds of readers asked it after Part 1: What exactly are SFT, AIS and TIS, and why they matter to every taxpayer? In simple terms, certain entities like banks, cooperative societies, property registrars, mutual funds, insurance companies, credit card companies and even some hospitals must report high-value transactions to the Income-tax Department. These reports are called Statements of Financial Transactions (SFT). The Department collects all this reported data and presents it to you as the Annual Information Statement (AIS). For easy reading, the AIS is summarised into the Taxpayer Information Summary (TIS). Earlier, the Department started with your return. Now, it starts with the data others have reported – and your return is simply expected to match that data. When they match, the system smiles. When they don’t, questions begin.

So what should taxpayers do now – especially those who know that some past transactions, cash dealings or “friendly advice–based deductions” may not match what SFT/AIS/TIS will eventually surface after recent action by I&CI & DI wing of the income tax department? Here is a practical, straightforward and peace-of-mind-saving guide.

1.  Don’t ignore the AIS/TIS – open it, read it, reconcile it:
Log in to your e-filing account and open your AIS/TIS. It contains property deals, deposits, withdrawals, mutual fund buys, dividends, interest income, hospital payments and much more. Compare it with your bank statements, demat account, property records and receipts. Small mismatches may be innocent. Large mismatches are the financial versions of “We need to talk.” If the AIS shows something you don’t recognise, investigate. If it shows something you prayed would remain invisible, investigate faster.

2.  Choose the correct route – Revised Return vs Updated Return:
If you find an omission or error in a return you’ve already filed, two paths exist. The first is a Revised Return under section 139(5). This can be filed within the permissible time limit (i.e., up to 31 December of the assessment year). Revising a return is not a crime; it simply corrects the record. Tax and interest may apply, but there is no penalty for merely revising.

The second path is the Updated Return which can be filed within 48 months of the assessment year & involves extra payment depending on how late the correction is. Taxpayers can use updated returns as a safety valve rather than waiting for an enquiry.

3.  Calculate tax, interest and possible penalties before filing:
Corrections may lead to additional tax plus interest under Section 234A/B/C. However, it will still sound cheaper as compared to the penalty under section 270A in cases involving major understatement of income. Taxpayers may compare tax, interest vis a vis probable penalty exposure. Most people discover that voluntary correction today is far cheaper than compelled correction tomorrow.

4.   File quickly – timing decides the cost:
In a data-matching environment, time is money – literally. If the revision window is open, use it immediately. If it has closed, the updated return route is still available but the financial cost increases with delay. Whether your mismatch is due to oversight, carelessness or overconfidence, fix it early. The system no longer waits for you; it reconciles your data with multiple sources.

5.  Keep proper documents – they are the real armour:
Every filing should be backed by documents: bank statements, property deeds, receipts, brokerage statements, donation proofs, medical bills and any relevant communication. In a data-driven tax system, documents are not backup – they are survival tools. When the system compares your version with third-party reporting, your paperwork must be ready to answer any question.

6.  Correct bogus refund claims before they correct your sleep:
The Nagpur exercise exposed several salaried taxpayers who had claimed excessive deductions based on suggestions like “Sab log claim karte hain,” or “System mein kahaan dikhega?” With AIS/TIS/SFT reporting, such mismatches stand out loudly. If you have ever claimed deductions that do not have real evidence – inflated 80G donations, imaginary housing interest, exaggerated medical insurance, or dependents who exist only at tax time – correct them now through a revised or updated return. If a wrong refund has already been received, repay voluntarily. Not out of fear, but because the system is built to detect such patterns sooner or later. Voluntary correction greatly reduces penalty and prosecution exposure.

7.  If contacted by the Department – cooperate, but stay factual:
If you receive a query, respond politely, submit documents, and avoid giving casual statements out of irritation (“agent filled it,” “I didn’t check,” “I don’t remember”). Simple, factual explanations work best. The Department’s systems today rely more on data mismatch than suspicion – so your job is to make sure your documents answer the mismatch, not create new questions.

8.  Build future compliance – don’t repeat the past:
Going forward, use AIS/TIS as your periodic financial health report. Ensure you document & consider everything before filing it. For businesses, reconcile books with probable SFT reportable items frequently, not once a year. Matching data at the source prevents matching notices later.

The Road Ahead:
What happened in Nagpur was not a crackdown but a beginning. Transparency is moving from being a policy goal to being the system’s default setting. When multiple departments, databases and regulators begin to connect their dots, concealment becomes temporary and compliance becomes a habit.
The choice before taxpayers is simple: correct voluntarily today or correct forcibly tomorrow. One path is peaceful; the other is predictable. The smart choice is obvious –

 act now, while the system still allows the honour of voluntary correction.

[Views expressed are the personal view of the author. Readers are advised to seek professional advice before taking any decisions. Readers may forward their feedback & queries at nareshjakhotia@gmail.com.  Other articles & response to queries are available at www.theTAXtalk.com]