Around 60 per cent of the 1.11 crore people who responded to the Income Tax department’s NUDGE campaign to encourage better tax compliance, by revising or updating their returns, were non-filers — a clear sign that the initiative, which involved targeted e-mails, has paid off.
The I-T department is now analysing data to find out what kind of “nudging” worked best. “We send three types of emails — some softly worded, some more pointed. The team is analysing the data to see what actually helped in respect of each of these e-mails, where the language was different. The team is analysing the data to see what worked best,” Ravi Agrawal, chairman, Central Board of Direct Taxes (CBDT), told The Indian Express.
“Do we communicate through SMS or through e-mail? Or e-verification? If it’s e-mail, what sort of e-mail should go — that would depend on the profile of the taxpayer,” Agrawal said.
The profile of the taxpayer would be shaped by multiple factors, such as past compliance patterns and tax liability under consideration, among others. “It’s a reiterative process and becomes refined (over time),” he said.
First implemented in late 2024, NUDGE – Non-intrusive Usage of Data to Guide and Encourage — is a tech-driven campaign that uses data analytics, behavioural insights and digital messaging to improve tax compliance.
The key difference between NUDGE, including the NUDGE 2.0 avatar of late 2025 that focussed on foreign assets and income, and previous efforts to boost compliance is the fact that it is preventive in nature and not post-facto enforcement. The latter would require scrutinising crores of tax returns — an impossible task for the Government.
The results are visible. According to Agrawal, the NUDGE 2.0 campaign for foreign assets and income brought in about Rs 640 crore of additional revenue for the department. Data analytics has helped the department spot erroneous refund or deduction claims. Once these cases were identified, NUDGE 1.0 and 2.0 led to around Rs 1,750 crore of refund claims being reduced in revised returns.
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“Overall, around Rs 8,800 crore of additional tax came out of that exercise over a period of two years and 1.11 crore updated and revised returns were filed,” Agrawal said.
So how does the I-T department decide who is to be “nudged”? Ideally, all taxpayers should file returns. For the financial year that ended in March 2025, around 12 crore people paid taxes but only nine crore returns were filed.
Instead of pursuing all the three crore non-filers — some of whom may have paid a very small sum as tax — the department analysed data to pursue those falling in a so-called ‘A’ category, according to CBDT sources. These taxpayers are those whose incomes are likely more than the minimum threshold of Rs 12 lakh. They were then nudged through e-mails or SMSs, as suitable, officials said.
Even those who do not directly receive any communication from the I-T department have ended up revising their returns after coming across media reports of the NUDGE campaign.
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Such campaigns are common overseas, beginning with the UK in 2012 when the British government sent reminder letters with simple changes — “Nine out of ten people in the UK pay their taxes on time. You are currently in the very small minority of people who have not paid us yet.”
“The changes were very successful, inducing payments of 4.9 million pounds (around $6.5 million) in a sample of almost 120,000 delinquent taxpayers, which would not have been raised without the intervention,” the World Bank noted in 2018.
Based on the 2008 book Nudge by economist and Nobel laureate Richard Thaler and Professor Cass Sunstein of Harvard Law School, the concept is governments can nudge people to make better decisions by making minor and subtle changes in the environment in which these choices are made.
In India, meanwhile, the tax nudges are set to continue.
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According to Agrawal, NUDGE has now become SAKSHAM NUDGE: S for sankalan (compilation of data), A for anusandhan (research and analytics), K for kriyanvyan (identifying whom to nudge), S for sampark (communicating to create awareness and guide behaviour), H for hastak (handholding and facilitation, such as through FAQs), A for adhikaar (allowing revision of returns to foster trust), and M for mulyankan (assessment).
This, Agrawal said, is a “scientific process that will get more robust with time”.
According to the CBDT chairman, tax compliance should be a “collaborative, non-adversarial process” where the inherent assumption is that the taxpayer will comply automatically.
“The tax department shares information and the taxpayer is expected to file returns showing that income. A lot of people are doing it; the fact that 1.11 crore people responded to this NUDGE campaign reflects that. Going forward, my appeal to the taxpayer is: why should there be multiple iteration or communication? In the first place, the taxpayer should ensure that the correct income is filed. For cases where there is a gap, you improve the data analytics,” he said.
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