CBDT charts route to achieve target after ₹1 tn relief to middle class

The Central Board of Direct Taxes (CBDT) has prepared and circulated its annual strategy for the new financial year to field officers this week, said one of the two persons quoted above, speaking on the condition of anonymity.

It has laid down targets for not only tax collection from different regions, led by Mumbai and Delhi, but has also set regional targets to trim arrears and demands from ₹48.17 trillion as of 1 April 2025, said the second person, who also didn’t want to be identified. The apex direct tax policymaking body has also proposed ways to cut down litigation, the person said.

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“We have filled in vacant posts at different levels and have circulated the annual action plan among field formations this week, which is earlier than was done in previous years," the first person quoted above said. “We are hopeful of meeting the budgeted revenue collection figures this year."

The government’s proactive approach to shore up direct tax revenue, which contributed 58% to its gross tax revenue in FY25, comes amid global trade uncertainty triggered by US President Donald Trump’s tariff flip-flops. India’s direct tax collections exceeded budgeted targets in the last four financial years after the pandemic-hit FY21, because of strong personal income tax buoyancy. This enabled the government to sacrifice about ₹1 trillion in revenue by cutting taxes for the middle class to boost consumption.

Queries emailed to CBDT and the finance ministry on Thursday, seeking comments remained unanswered at the time of publishing.

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According to the CBDT’s strategy, field officers in the Mumbai region must meet the highest revenue collection target of ₹7.4 trillion or slightly less than a third of the ₹25.2 trillion all-India goal this year, followed by ₹5.59 trillion or 22% for the Delhi region. The tax authority set a target of ₹2.8 trillion for the Karnataka region, ₹1.35 trillion for Pune, ₹1.29 trillion for Tamil Nadu and ₹1.19 trillion for Gujarat, the second person said.

Simplifying the tax-filing process and providing clear guidance can significantly boost compliance, according to Hita Desai, chartered accountant at NPV & Associates LLP, a financial advisory firm. Timely reminders, easy-to-use online platforms, responsive helplines and accessible self-help tools will support taxpayers and encourage on-time filing, Desai said.

Taming ballooning arrears

The CBDT has asked the income tax department’s regional heads to trim direct tax arrears, which were estimated to be ₹48.17 trillion as of 1 April 2025, by ₹8.2 trillion this year. Mumbai has to reduce the arrears by ₹2.58 trillion, while Delhi has to cut it by ₹1.86 trillion.

The strategy also mandates setting up teams led by senior field officers to oversee the top 5,000 outstanding tax demands at the national level, estimated at ₹3.2 trillion, for resolution, the second person quoted above said.

The CBDT expects that demands pending for more than five years are more likely to be resolved through appeals. Other ways to cut arrears include rectifying the department’s tax orders, implementing the directives of the appellate authorities and write-offs in case of genuinely unrecoverable amounts, where all efforts have been exhausted, while maintaining accountability at the senior-most levels of the tax authority.

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This follows the advice from the parliamentary standing committee on finance led by Bhartruhari Mahtab this March to “true up the huge backlog of demand arrears in a time-bound manner". The panel noted that as of mid-February this year, two-thirds of the ₹43 trillion direct tax arrears was difficult to collect as a lot of these demands were fictitious. The figure keeps swelling on account of automated interest calculation on difficult-to-collect arrears. The committee advised the department to review the existing tax assessment system.

Trust-based approach

The CBDT has reminded field officers that no coercive action should be taken in cases identified as ‘high-pitched scrutiny assessment’ (aggressive tax demands) by designated teams, said the second person quoted earlier. 

To reduce the burden of non-compliance on the CBDT, the focus should shift from retrospective enforcement to proactive support, said Desai of NPV & Associates. “Taxpayers should be encouraged to seek professional assistance to ensure accurate and timely filing."

“While rules must be strictly enforced in the case of willful defaulters and high-risk sectors, the tax department’s overall approach should remain cooperative and supportive for those who are willing to comply," said Desai.

Field offers have to find out reasons for any negative trend in tax collection, closely watch top advance taxpayers, encourage accurate assessment of advance tax liabilities and identify incorrect claims of tax exemptions and deductions.

The tax authority also reminded field officers to focus on trust-based tax administration with emphasis on the spirit of service—as articulated by finance minister Nirmala Sitharaman in her budget speech. Sitharaman had reaffirmed department’s commitment to “trust first, scrutinize later".