The Income Tax Department, in a significant move to curb tax evasion, has intensified its scrutiny of High Net Worth Individuals (HNIs) suspected of underreporting their income. According to sources, the department is analysing spending patterns, high-value transactions and expense data to identify discrepancies between declared income and actual financial behaviour.
A senior tax official revealed that while 7-8 lakh individuals, including Hindu Undivided Families (HUFs) and firms, earn over Rs 1 crore annually, only about 3.5 lakh taxpayers filed income tax returns (ITRs) reporting such income in the assessment year 2023-24 (FY23). "A much larger number of people have the income but aren't disclosing it accurately in their tax filings," the official said.
The department is leveraging technology to implement a 360-degree profiling system that cross-verifies declared income against various data points. This includes data sourced from TDS (Tax Deducted at Source), TCS (Tax Collected at Source), GST records, foreign remittances and Specified Financial Transactions (SFTs).
"Spending patterns often reveal the true income of individuals," said another senior official, noting that purchases of luxury goods, foreign travel and large investments don't always align with reported earnings.
To strengthen its surveillance, the government has introduced targeted TCS measures on high-value goods such as luxury watches, handbags, sunglasses, and home theatre systems priced above Rs 10 lakh. "This helps create a transaction trail that can be matched against income disclosures," a tax expert said.
Authorities are also using Artificial Intelligence (AI) and big data analytics to process and compare information from financial institutions, real estate transactions, and foreign fund transfers. This enables the department to flag returns for scrutiny where reported income appears inconsistent with visible spending.
Experts warn that several HNIs attempt to evade taxes through tactics like issuing fake invoices, inflating expenses, or filing fraudulent deduction claims under fictitious business activities. Cash transactions-especially in sectors like real estate, hospitality, and small retail-remain a persistent loophole in tax compliance.
To plug such gaps, the department has mandated the use of PAN (Permanent Account Number) for high-value transactions and imposed TCS on foreign remittances and luxury vehicle purchases. Under the Liberalised Remittance Scheme (LRS), foreign remittances exceeding certain limits attract TCS-especially on overseas tour packages and remittances beyond Rs 7 lakh for education, investments, or other purposes.
"These mechanisms help track whether outward financial flows are in sync with the income reported in tax returns," said tax expert Sriram, adding that although AI-led analysis may not be flawless, it can significantly increase the chances of uncovering underreported income.
With the government aiming to widen the tax base and improve compliance among the wealthy, the message is clear-lavish spending without matching tax transparency will come under the scanner.
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