Income Tax Notice to Salaried Individual

Receiving an income tax notice can be a stressful experience for salaried employees, but it is not uncommon. Such notices are official communications from the Income Tax Department, often triggered by discrepancies in tax filings, mismatches in income declarations, or errors in claiming deductions. While the process may seem daunting, understanding the reasons behind these notices and knowing how to respond effectively can make the situation manageable.

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Income tax notices can arise due to several reasons, often tied to errors, omissions, or inconsistencies in your filings. Below are the common triggers:

Claiming excess deductions

• Overstating deductions under sections like 80C, 80D, or 80G can lead to scrutiny. For example, claiming deductions for investments or donations without proper documentation can result in a notice.
• Always ensure your claims are backed by valid proofs, such as receipts or investment certificates.

Mismatch of ITR with Form 26AS

• Discrepancies between your Income Tax Return (ITR) and Form 26AS—your annual tax statement—are a frequent cause of notices. If the income reported by your employer or bank does not match your filings, you may be flagged for review.
• Cross-verify Form 26AS before submitting your ITR to avoid errors.

Non-disclosure of foreign income or assets

• Failing to declare overseas income or assets can attract notices under stringent scrutiny laws. For instance, earnings from foreign investments or rental income from overseas properties must be disclosed.
• Transparency in reporting foreign income ensures compliance and avoids penalties.

Discrepancy in income

• Any mismatch between your employer-reported salary and the income you declare in your ITR can lead to a notice. This often occurs due to incomplete reporting of allowances or bonuses.
• Ensure that your salary details in Form 16 align with your ITR filings.

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Undisclosed income

• Supplementary incomes like bonuses, interest from savings accounts, or freelance earnings that are not declared in your ITR can trigger notices.

Ignoring previous notices

• Failure to respond to prior notices or incomplete resolutions of past issues can escalate liabilities and result in further communication from the tax department.
• Always address notices promptly to avoid compounding penalties.

Non-filing of ITR

• Skipping your ITR filing altogether is a serious offence and can result in hefty fines. Even if your income is below the taxable limit, filing ensures compliance and prevents future issues.

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1. Notice under Section 143(1)
This is an intimation generated after the ITR is processed by the Central Processing Centre (CPC). It confirms whether your computation aligns with the department’s records and highlights any refund or tax demand.

2. Notice under Section 142(1)
Issued to seek clarification or documents, or to require filing of a return if none is filed. It can be served regardless of whether an ITR has already been submitted.

3. Notice under Section 139(9)
A defective return notice sent when there are errors or omissions in your filed ITR. You typically have 15 days to correct it via a revised return.

4. Notice under Section 143(2)
A scrutiny notice issued when your return is selected for a detailed assessment under Section 143(3). You must respond with supporting documents within the time frame stated, usually within 15 days.

5. Notice under Section 148
Issued when income appears to have escaped assessment, prompting reassessment. It’s preceded by a Section 148A notice and issued if the assessing officer suspects underreported or undisclosed income.

6. Notice under Section 156
A demand notice issued after assessment if taxes, interest, or penalties are payable. The notice will specify the payment due date, commonly within 30 days.

7. Notice under Section 245
This adjustment notice indicates that your refund will be set off against tax demand from previous years. You’re usually given 30 days to object or consent before adjustment.

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Responding to an income tax notice requires a systematic and timely approach. Follow these steps to address the issue effectively:

1. Read the notice carefully: Understand the reason for the notice and the required actions.
2. Gather relevant documents: Collect Form 16, Form 26AS, ITR copies, investment proofs, and any other supporting documents.
3. Respond within the deadline: Timely compliance is crucial to avoid penalties.
4. Provide accurate information: Attach relevant proofs logically and ensure all details are correct.
5. Seek professional help if necessary: Consult a tax advisor or chartered accountant for expert guidance.
6. Submit your response online: Use the e-filing portal for seamless submission and track acknowledgments.
7. Monitor follow-ups: Regularly check for updates or additional queries from the tax department.

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Prevention is always better than cure. Follow these best practices to minimise the risk of receiving income tax notices:

• File your ITR accurately and on time.
• Verify Form 26AS for consistency with your filings.
• Report all sources of income, including bonuses, interest earnings, freelance work, and foreign income.
• Maintain proper documentation for deductions and exemptions, such as rent receipts for HRA or travel tickets for LTA.
• Respond promptly to any previous notices to resolve issues effectively.
• Avoid claiming excessive deductions or exemptions without valid proofs.

Income tax notices can be intimidating, but understanding their types, reasons, and solutions can help salaried employees address them confidently. Proactive compliance, accurate reporting, and timely responses are key to avoiding penalties and maintaining financial peace of mind.

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