I-T Department Targets Settlement of ₹10 Lakh Crore Disputes in FY26: Focus Shifts to First-Appeal Forum

The Income Tax (I-T) department has set an unprecedented target for the financial year 2025–26: to settle over 200,000 cases at the Commissioner of Income Tax (Appeals) [CIT(A)] stage. The disputed amount involved stands at a staggering ₹10 lakh crore. This aggressive push represents a substantial increase from FY25, when 1,72,361 cases were resolved involving ₹6.3 lakh crore.

Financial Implications for the Exchequer and Businesses

According to recent trends, about a third of the disputed amount becomes immediately realisable following settlements. If the FY26 target is achieved, it could result in a significant boost to tax revenues. At the same time, businesses could benefit from improved liquidity as several tax demands especially those deemed unrecoverable, are often withdrawn during the appeal process. This would free up funds otherwise locked in litigation, allowing enterprises to meet working capital needs or even fund capital expenditure.

Mounting Tax Arrears Necessitate Urgent Action

As of April 1, 2025, the total outstanding income tax arrears stood at ₹48.18 lakh crore across 22.9 million demand entries. This rising backlog has prompted the Central Board of Direct Taxes (CBDT) to make a strategic shift in its Central Action Plan for 2025–26. The board has now set a target of reducing disputed demand by ₹8.25 lakh crore while aiming for a net collectable demand of just over ₹5 lakh crore.

Record-High Appeal Disposals in FY25

FY25 marked a milestone in dispute resolution with a 55% year-on-year increase in the disposal of appeals. Of the appeals disposed of at the CIT(A) level, demands worth ₹1.95 lakh crore were fully confirmed in favour of the revenue department, and another ₹2.25 lakh crore were partially upheld. This performance has laid the groundwork for an even more ambitious year ahead.

Read More: ITR-1 and ITR-4 Forms Updated for AY 2025–26: Easier Tax Filing for Small Investors and Salaried Individuals.

Prioritising Recovery and Managing Old Demands

To improve recovery rates, the CBDT has instructed assessing officers to maximise efforts in collecting demands confirmed by the CIT(A). Notably, the probability of demand reduction increases with the age of the case. Older demands especially those over five years have a higher chance of being resolved through appeals, rectifications, or insolvency proceedings. On the other hand, newer demands are considered more likely to result in actual collections.

Relief Measures for Small Taxpayers

Among the pending appeals, those involving disputed amounts of up to ₹1,00,000 have been singled out. This category reportedly comprises a significant proportion of the total appeal volume. By prioritising resolution in these cases, the department aims to offer relief to a large number of small taxpayers, potentially reducing their litigation burden.

Conclusion

In an effort to strengthen tax compliance and achieve the direct tax collection target of ₹25.2 lakh crore set for FY26—a 13.2% increase over the previous year the CBDT has mandated close scrutiny of sector-wise tax performance. Officers have been instructed to investigate negative payment trends, evaluate the growth trajectory of advance tax in various sectors, and monitor large advance tax payers. Additionally, identifying and addressing claims involving incorrect exemptions and deductions remains a key area of focus.

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