Finance leaders today can’t ignore the surge in the number of tax disputes that the government is issuing these days . In fact, it has emerged as a key trend requiring attention.
As of March 2024, over ₹11.83 trillion in direct tax demands were still pending in litigation. GST disputes account for another ₹5.76 trillion. These aren’t numbers from decades of backlog. A considerable portion of this is about new notices and assessments issued over the last 12–18 months.
But the focus should not be on the volume here. It should be about how the changes in the system have driven this surge in volume. As the government moves towards real-time validations, AI-based cross-checks, and digitally connected enforcement, a mismatch in any one system can now trigger a notice within days.
For CFOs or even other tax or finance heads, this isn’t just a compliance alert. It may present financial and reputational implications that can affect reporting cycles, investor updates, and audit closure timelines.
Let’s break down what changed — and what finance teams need to prepare for.
1. AI-Driven Flagging Is Catching Discrepancies Across Returns
India’s tax authorities are no longer waiting for manual audits. The income tax system is now leveraging powerful predictive analytics technology to run pattern-based checks— comparing ITRs with TDS data, GST returns, and financial statements. They even compare the data of one year with the previous return data to understand if there have been any deviations or inconsistencies.
If something doesn’t add up, the system raises it.
The government is increasingly using these tools to identify under-reporting patterns, incorrect deductions, and unexplained income shifts. Combined with GST’s own analytics layer, this has coincided with an increase in assessments.
To avoid getting a tax notice under this regard, CFOs now need to conduct monthly validations across tax filings — not just at year-end. If ERP data, filings, and books do not align, the department will likely catch it before you do. In such cases, automated GST compliance software can truly help avoid any possible mismatches with its unmatched accuracy in return filing.
2. Auto-Validation of GSTR-3B
Starting April 2025, the GST Network (GSTN) introduced new validations between GSTR-1 (invoice-level sales data) and GSTR-3B (summary-level return). These are not soft checks but system-enforced validations. If the values don’t match, there can not be filing of the return without justification.
One of the most impactful changes has been in Table 3.2 of GSTR-3B, which reports outward taxable supplies made to unregistered persons, composition dealers, and UIN holders. Any mismatch between the state-wise turnover in GSTR-1 and the data in 3.2 now triggers system flags.
Even more importantly, these mismatches don’t just stop at alerts — the government follows up by:
- Show-cause notices under Section 61 of the CGST Act
- Auto-population warnings that restrict offsetting input tax credit (ITC)
- Blocking of e-way bill generation in some cases
This is particularly relevant for companies operating in multiple states with separate GSTINs. If decentralised teams are filing returns independently without consolidated oversight, mismatches are almost inevitable.
So, GST filing can now not be an isolated compliance task anymore. Finance teams need GST software with centralised dashboards to monitor:
- Location-wise taxable turnover
- Return submission timelines
- Consistency between the uploaded and filed returns
CFOs now need to ensure that monthly reconciliations between GSTR-1 and GSTR-3B happen automatically into the compliance workflow. If your ITC claims or revenue positions are built on mismatched data, notices are now system-triggered — not human-flagged.
3. Transfer Pricing Tax Disputes Aren’t Slowing Down
India’s 2025 Budget introduced a Block Transfer Pricing (TP) Assessment Scheme, which allows the same Arm’s Length Price (ALP) method to be applied over a three-year period. While the goal is to reduce repetitive assessments and offer more certainty, the change has led to an increase in tax disputes.
People are still unclear on how to opt into the scheme, and some definitions around eligibility are unclear to them, and the possibility that a pricing adjustment in the first year may be applied to the following two years is concerning. The rules do not clearly explain how minor changes in transactions or relationships with associated enterprises will affect a taxpayer’s position under the scheme.
To manage these challenges, CFOs and finance leaders should carry out detailed reviews of their transfer pricing positions, ensure consistency in documentation across the years, and consult with advisors before choosing to adopt the scheme. Taking these steps can help reduce risk and prepare for possible scrutiny.
4. Reassessments and ITR-U Are Reopening Older Years
Section 148 reassessments have become a lot more common since the Income Tax department started using AI to scan past filings against current data. This includes linking PAN data with SFTs (statement of financial transactions), real estate records, and digital payment trails.
Separately, the ITR-U mechanism now allows taxpayers to update returns for the last two years — but this same mechanism has helped the department track inconsistencies between reported and corrected income.
For instance, a company that updates its FY22 return to include unreported income under ITR-U may prompt a review of surrounding years — especially if the quantum is large or relates to cross-border deals.
CFOs need to scrutinize historical filings — especially FY20–FY23 — for positions that might need correction. If updates are required, taking the ITR-U route proactively is necessary. But they should also be prepared for scrutiny in adjacent years.
Conclusion: Real-Time Tax Controls Are Non-Negotiable
Tax enforcement in 2025 is fast, automated, and unforgiving. The system will detect and act no matter the type of error. Whether it’s a mismatch in GST returns, inconsistencies in transfer pricing documentation, or historical gaps uncovered through AI. Any of it can turn into lengthy tax disputes.
For CFOs, the message is clear: tax compliance is no longer an end-of-year checklist. It’s a continuous process that demands accuracy, coordination, and proactive oversight across systems and teams.
This is where GSTrobo® adds significant value. With its inbuilt checks, automated reconciliations, and real-time validations, it helps finance teams spot and resolve discrepancies before they lead to notices. Features like the CFO dashboard, AI-driven invoice matching, and litigation tracking aren’t just technical add-ons — they’re essential tools for managing risk and maintaining control.
In an environment where every inconsistency can trigger a response, having the right systems in place isn’t just helpful — it’s critical.
