HNI Income Tax Scrutiny in India: Over 7 Lakh Likely Earning Over ₹1 Crore but Underreporting in ITRs

Income tax authorities are stepping up their scrutiny of high-net-worth individuals (HNIs) by closely monitoring their high-value expenditures. This includes tracking spending through Tax Collected at Source (TCS), Tax Deducted at Source (TDS), and foreign remittances. Additionally, authorities are delving into Goods and Services Tax (GST) data to better assess the financial activity and spending patterns of HNIs, according to a report by Moneycontrol.

Income Tax Authorities Intensify Scrutiny on High Networth Individuals

Income tax authorities in India are stepping up surveillance on high-net-worth individuals (HNIs) whose income declarations may not reflect their actual earnings. According to an internal assessment cited by officials, while over 3.5 lakh taxpayers filed income tax returns (ITRs) disclosing income above ₹1 crore during the assessment year 2023-24 (for FY23), the actual number of individuals likely earning more than ₹1 crore annually is estimated to be between 7 to 8 lakh.

This discrepancy suggests a large segment of high-income earners may be underreporting their income or exploiting loopholes to lower tax liability. The income tax department is leveraging modern technology to bridge this gap through advanced data analytics and profiling.

360° Profiling and Monitoring Through Technology

Authorities are employing a ‘360° profiling’ mechanism, using data collected through Tax Collected at Source (TCS), Tax Deducted at Source (TDS), and foreign remittances. In addition, the Goods and Services Tax (GST) data is also being cross-referenced with income disclosures to establish a comprehensive financial footprint of taxpayers.

The scrutiny includes high-value purchases such as luxury vehicles, expensive consumer goods, and large-scale cash transactions. These are monitored to evaluate whether the declared income aligns with observed spending habits.

Mismatch in Spending and Declared Income

While only 3.50 lakh individuals declared income over ₹1 crore in ITRs out of the 7.97 crore filed during AY 2023-24, spending patterns suggest that a significantly higher number may be earning at those levels. Officials indicate that purchases of luxury goods and foreign travel expenses are not always proportionate to income shown on tax returns.

Instances of business owners inflating expenses, issuing fake invoices, or claiming unwarranted deductions have also come under the scanner. Real estate, hospitality, and unorganised retail sectors are particularly susceptible to unaccounted cash income.

Read More: Income Tax Filing: ITR-1 and ITR-4 Now Available for Online Filing for AY 2025–26! 

High-Value Transactions Under Watch

The government has introduced several policies to increase tax transparency. PAN details are now mandatory for transactions exceeding certain thresholds. TCS is applicable on luxury items like watches, handbags, and electronics priced above ₹10 lakh. Foreign remittances under the Liberalised Remittance Scheme (LRS) are monitored, with TCS applicable if transactions exceed ₹7 lakh for education, investment, or overseas travel.

These financial movements are flagged and correlated with ITRs. In case of a mismatch, tax returns are selected for scrutiny. Advanced analytics, including AI-based tools, are now used to detect such anomalies.

Data Collection from Financial Institutions and Global Networks

Authorities are also receiving data under the Specified Financial Transactions (SFT) scheme and through international cooperation mechanisms. These include information from foreign banks, financial intermediaries, and investment platforms. This global data-sharing enhances the ability to evaluate whether Indian residents are concealing income abroad.

Experts note that while AI may not be 100% accurate in detecting discrepancies, it provides a strong preliminary filter for potential tax evasion.

Conclusion

India’s tax administration is undergoing a strategic transformation, with a sharper focus on high-net-worth individuals whose spending far exceeds declared income. Through integrated systems and real-time tracking, authorities aim to ensure accurate income reporting and increased tax compliance.

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