Behind the rise in tax collections is a quiet shift in strategy. India’s latest Economic Survey for FY 2025–26 shows how data-led “nudges” helped correct false claims and improve compliance without aggressive action. Targeted alerts on wrong House Rent Allowance (HRA) claims alone brought in an extra ₹119 crore.
The survey noted: “Targeted nudges led to a reduction in incorrect House Rent Allowance (HRA) claims, resulting in additional tax collections of over Rs 119 crore.”
The NUDGE approach—Non-intrusive Usage of Data to Guide and Enable—was rolled out by the Income Tax Department this year. It relies on behavioural economics, using timely information and gentle reminders instead of audits or penalties.
Using large-scale data analytics, the system flags likely mismatches and asks taxpayers to review their returns. Many chose to correct errors voluntarily.
One major outcome came from the Foreign Asset Campaign. Nearly 25,000 taxpayers revised their ITRs. Over 61% responded positively to nudges. This led to the disclosure of foreign assets worth over ₹29,000 crore and foreign income above ₹1,000 crore, much of it through belated returns.
Similar results were seen in political donation claims under Section 80GGC. More than 91,000 taxpayers updated their returns. Excess deductions fell by about ₹2,050 crore, and extra tax of over ₹680 crore was paid.
The nudges also improved TDS accuracy. Over 8,500 deductors revised filings, adding more than 1.08 crore deductees and bringing in nearly ₹4,825 crore in additional TDS. The system further detected non-genuine agricultural income of ₹2,038.02 crore from 310 entities and capital gains of ₹33,057.28 crore from promoters’ OFS during IPOs.
Experts say the impact goes beyond numbers. Sandeepp Jhunjhunwala of Nangia Global said the results show how technology-driven reforms can widen the tax base and support steady revenue growth.
Archit Gupta of ClearTax said: “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.” He added: “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.”
On HRA, experts remind taxpayers that exemption is capped. It is the lowest of: actual HRA received, 50% of salary for metro cities or 40% for others, or rent paid minus 10% of salary. Salary includes basic pay, DA, and commission on turnover.
Overall, the nudge model has shifted tax administration from post-action enforcement to preventive, tech-led compliance—cutting disputes and raising revenue through voluntary correction.
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