(MENAFN- Live Mint) New Delhi: The Income Tax department is engaging with taxpayers to encourage voluntary compliance wherever gaps are detected in tax returns and is hopeful of meeting its direct-tax collection target by the end of the financial year, Central Board of Direct Taxes (CBDT) chairman Ravi Agrawal said on Monday. The department is holding outreach programmes to encourage voluntary compliance, he added.

Direct tax revenue, after adjusting for refunds, grew at 7% annually over 1 April to 10 November this year to ₹12.9 trillion – a notch above half of the ₹25.2 trillion direct-tax collection target for the financial year. Meeting this target will require 16% annual growth from the ₹21.69 trillion collected in FY25, as per actual collection figures reported by the government.

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A moderation in direct tax collection growth is expected this fiscal year as the government has extended relief to individuals, especially the middle class, by restructuring the tax slabs under the new income tax regime and raising the rebate available to individuals from ₹7 lakh to ₹12 lakh. The revenue impact was estimated to be ₹1 trillion at the time of making the FY26 budget.

“Direct tax collection is up by 6.99% compared to last year, which is an encouraging trend. We hope that by the end of the year, we will be able to meet the target. Wherever we find any gap, we are connecting with taxpayers through emails. Provisions enable taxpayers to file an updated return wherever there is a gap, and there has been an encouraging response from taxpayers. We are very hopeful that we will meet the target,” said Agrawal.

'Constructive step'

The tax department's enhanced outreach to taxpayers, particularly in situations where information available with the department suggests potential discrepancies in reported income, is a constructive step toward strengthening voluntary compliance, said Amit Maheshwari, tax partner, AKM Global, a tax and consulting firm.“The department's current outreach efforts support a more collaborative tax environment. If the present facilitative and technology-enabled approach continues, meeting the annual direct tax collection target remains both reasonable and achievable,” he added.

Agrawal said,“Two more instalments of advance tax payments are there (this year).” The department is engaging with the taxpayers through emails and outreach programmes to enhance voluntary compliance. Agrawal said that taxpayers have until 31 December to revise their tax returns for FY25.

Revised tax returns allow individuals and businesses to correct errors and omissions such as unreported income or incorrect deductions. Taxpayers also have another way to do so - by filing updated tax returns within four years of the original return. This means an individual could update their tax return for FY21, filed in 2021-22, in this assessment year.

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Agarwal said,“The relaxations in tax rates announced last year have been taken into account while setting the direct tax revenue collection target for the current financial year and we should be able to reach that target. He added that rationalisation of the tax deducted at source (TDS) rates would translate to lower tax refunds.

While tax collections have grown at a moderate pace this year, the sustained use of streamlined compliance processes, e-verification mechanisms, and pre-filled return systems provides a strong foundation to achieve the annual direct-tax target, said Maheshwari of AKM Global.

Voluntary compliance could be further encouraged with transparent communication such as the continued use of e-verification, nudges, and advisory messages, which allow taxpayers to review and correct genuine mismatches before any formal proceedings begin, Maheshwari said.

The tax department has issued notices to several taxpayers who claimed deductions for donations to political parties, he added.“These cases highlighted gaps in taxpayer reporting and prompted the government to strengthen voluntary compliance mechanisms.”

Recent reports indicate that the festive season has contributed to stronger corporate performance and higher advance-tax inflows, improving the prospects of meeting the corporate tax collection target, he said.

CBDT is currently working on the rules and forms under the simplified Income Tax Act 2025, which takes effect from April 2026. These will be issued by January so tax payers have enough time to go through them and adapt their processes, Agrawal said.

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