FBR Introduces Automated System to Flag Errors in Tax Returns

The Federal Board of Revenue (FBR) has introduced an automated mechanism to review income tax returns filed for tax year 2026, aiming to catch possible errors or discrepancies and alert taxpayers before any legal steps are taken. The system, known as Computerized Risk Management (CRM), will examine returns electronically and give filers an opportunity to explain differences, correct mistakes or take other required measures.

The change was brought in through S.R.O. 2098(I)/2026, which adds Rule 38B to the Income Tax Rules, 2002. The new rule sets out how returns will be scrutinized electronically and how taxpayers will be notified of issues identified by the automated system. The mechanism applies to income tax returns filed under Section 120(2A) of the Income Tax Ordinance, 2001.

Under the amended rules, the system may send online notices to taxpayers through the IRIS portal, pointing out possible factual or legal errors in their returns. Taxpayers will be given at least seven days to respond, explain the discrepancies or correct their filings. If no response is received within that period, the system will issue a reminder granting another minimum of seven days.

The rules also empower the relevant Inland Revenue officer to issue advance notices identifying discrepancies in a taxpayer's return. All identified issues, the notices sent and the taxpayers' responses will be shared with the officer and recorded on a dedicated dashboard. The officer will then review the response, or the lack of one, and decide whether further action is needed under the Income Tax Ordinance, 2001.

The FBR will implement the automated scrutiny, data matching, discrepancy identification and electronic communication process through a Change Request Form (CRF). The approach is intended to make compliance easier for taxpayers while allowing the tax authority to spot and address potential errors more efficiently.