CBDT launches 2nd phase of NUDGE initiative

• Analysis of the Automatic Exchange of Information (AEOI) for FY 2024-25 by the Central Board of Direct Taxes (CBDT) has identified high-risk cases where foreign assets appear to exist but have not been reported in the income tax returns (ITRs) filed for Assessment Year 2025-26. 

• Accordingly, the CBDT is launching the second NUDGE campaign, under which SMS and emails will be issued to such taxpayers, advising them to review and revise their returns on or before December 31 to avoid penal consequences.

• The campaign aims to facilitate correct reporting in Schedule Foreign Assets (FA) and Foreign Source Income (FSI) in ITRs. 

• Accurate and complete disclosure of foreign assets and income is a statutory requirement under the Income-Tax Act, 1961, and the Black Money (Undisclosed Foreign Income and Assets) and Imposition of Tax Act, 2015.

• The CBDT continues to strengthen its data-driven, non-intrusive and taxpayer-centric measures aimed at improving voluntary compliance. 

• The CBDT receives information relating to foreign financial assets of India residents from partner jurisdictions pursuant to Common Reporting Standards (CRS) and from the United States under the Foreign Account Tax Compliance Act (FATCA). 

• This information assists in identifying potential discrepancies and guiding taxpayers towards timely and accurate compliance.

• The ‘Non-intrusive Usage of Data to Guide and Enable’ (NUDGE) initiative reflects CBDT’s commitment to a forward-looking, technology-enabled and trust-based tax administration focused on promoting accurate reporting and enhancing revenue mobilisation.

• The first NUDGE campaign, launched on November 17, 2024, targeted select taxpayers who had been reported by foreign jurisdictions under the AEOI framework as holding foreign assets that were not disclosed in their ITRs for AY 2024-25. 

• The initiative yielded positive outcomes, with 24,678 taxpayers (including several not directly nudged) revisiting their returns and disclosing foreign assets amounting to Rs 29,208 crore, along with foreign-source income of Rs 1,089.88 crore.

• The campaign aims to facilitate correct reporting in Schedule Foreign Assets (FA) and Foreign Source Income (FSI) in ITRs.

• This initiative is part of the CBDT’s broader ‘PRUDENT’ approach to tax administration, which emphasizes a non-intrusive, data-driven method to encourage compliance.

PRUDENT means:

P – Professionalism

R – Responsible & Responsive

U – Understanding (laws, transactions & business)

D – Dedication & Due Diligence / Data-based decision making

E – Effective enforcement (with empathy)

N – Non-intrusive administration (taxpayer-centric, compliance-nudging)

T – Technology (technology-based tax administration)

• Adopting this approach to tax administration, CBDT utilises advanced data analytics to simplify compliance processes, reduce information asymmetry and reinforce a transparent and trust-oriented interface with taxpayers.

(The author is a trainer for Civil Services aspirants.)