In a fresh wave of tax enforcement actions, the Income Tax Department of India has issued notices to high-income sole proprietors suspected of underreporting income and evading tax obligations. The move comes as part of a broader compliance drive aimed at identifying discrepancies between declared income and actual financial activity, particularly in sectors dominated by sole proprietors such as trading, services, real estate brokerage, and consultancy. According to officials, the notices were triggered by data mismatches flagged through advanced analytics, bank transaction monitoring, and GST filings cross-verification.

The department’s central data processing system reportedly identified sole proprietors with substantial cash flows, large digital transactions, or asset acquisitions, who declared significantly lower income in their tax returns. Notices have been sent under Sections 133(6) and 148 of the Income Tax Act, seeking clarification and additional documentation. Business owners are being asked to furnish details such as audited accounts, bank statements, cash books, and explanations for high-value expenses or investments. In some cases, mismatches in GST turnover, TDS filings, and UPI-based business receipts have also led to scrutiny.

Officials clarified that this enforcement exercise is not meant to penalize genuine businesses but to ensure tax equity and encourage accurate income disclosures by sole proprietors, many of whom fall outside traditional auditing processes. Tax professionals have urged affected individuals to respond promptly and truthfully, as failure to comply may attract penalties, interest, or even the reopening of prior assessments. The notices also serve as a broader signal that the department is increasingly leveraging digital footprints and real-time financial data to widen the tax base. As part of this exercise, the IT Department is also planning to host taxpayer awareness sessions focused on sole proprietorship compliance, voluntary disclosure, and presumptive taxation schemes.