It is not just India, Inc, especially those companies paying Minimum Alternate Tax (MAT) or claiming a substantial amount of profits under tax holiday, or for that matter, the rich stock brokers that are under scrutiny.

Yet another salvo has been fired by the Central Board of Direct Taxes (CBDT) pertaining to scrutiny of cases. This time, for non-corporate or individual tax-payers. All cases where income exceeding Rs 2 lakh has been claimed as exempt by individuals, will automatically come under scrutiny.

These cases will fall under the "compulsory" scrutiny category, admits a department official.

With dividends now tax exempt, as also long-term capital gains arising on sale of shares on a recognised stock exchange, this instruction issued to tax authorities last week, which forms part of the new scrutiny guidelines, may create considerable chaos.

Tax professionals feel existing manpower in the department may not prove adequate to deal with the deluge of scrutiny cases.

In fact, besides dividends and long-term capital gains, a host of income is exempt in nature. This includes leave travel allowance subject to certain conditions, gratuity, interest on specified tax-free bonds, agricultural income and so on.

The irony of it is if a rich farmer files a tax return showing a taxable interest income of Rs 10,000, but his tax-free agricultural income is in excess of Rs 2 lakh, his tax return will come in for scrutiny.

So also the returns of a retired person who has just received gratuity or a payout from his provident fund. There can be endless number of such examples.

In this context, KR Pradeep, a chartered accountant, says, "In some instances, the matter should not come in for scrutiny. These must be specified to avoid hardship to the tax-payer and also to decrease the work load on the department."

Further, individual tax-payers will come under scrutiny if the refund claimed by them exceeds Rs 10 lakh or above in Delhi, Mumbai, Chennai, Kolkata, Pune, Hyderabad, Bangalore and Ahmedabad or Rs 5 lakh and above in other places.

A similar materiality criteria has been laid down for deductions claimed under Chapter VI-A of the Income Tax (I-T) Act, which includes the deduction available on interest from various investment schemes such as interest on NSC, post office saving schemes, interest on bank deposits and so on.

"Tax authorities should examine cases of non-filing of returns, rather than bringing into scrutiny instances where the exempt income exceeds Rs 2 lakh," says a tax professional.

These internal guidelines state that the process of selection of cases for scrutiny of returns filed up to March 31, '04, must be completed by October 15, '04.

For returns filed during the current fiscal, the selection of cases for scrutiny will have to be completed within three months from the date of filing of the return. For individuals, the last date for filing the tax return for the financial year ended March 31, '04 is October 31.