Income tax notices inform taxpayers about issues like unfiled returns, incorrect details, or assessments requiring additional verification or documentation.
An income tax notice is an official communication issued by the Income Tax Department to a taxpayer when there’s a discrepancy, error, or concern related to their tax filings or payments. While receiving such a notice can be unsettling, it’s important to stay calm and understand its implications. This blog explores what an income tax notice entails, why it may be issued, and the various types of notices sent by the department in India.
An income tax notice is a formal communication sent to taxpayers by the Income Tax Department when they need additional information or clarification. There are a few reasons why you may receive such a notice:
If you have not filed your tax returns on time or at all, you may get a notice asking you to file the returns immediately and explain the delay.
If there is a mismatch between the income you have declared in your tax returns and the income visible from your salary slips, bank account, investments, etc., you may receive a notice seeking an explanation for the mismatch.
If you have made any errors in calculating the tax liability, paid lower taxes than required, or missed declaring any source of income, you may receive a notice asking you to pay additional taxes.
You may be asked to explain such claims or revise your returns if you have claimed deductions that are found invalid or are higher than permissible limits.
The notice will typically mention the specific section of the Income Tax Act under which it has been issued. It will provide details about the discrepancy identified by the department and the documents/information required from you for further verification.
Usually, most taxpayers panic upon receiving an income tax notice and do not try to understand the real cause behind its issuance. Below are the 7 most common reasons why the income tax department can send you a notice. Check them out and prepare better:
When filing your ITR, the details you provide must match the information in Form 26AS and Form 16. If there's a mismatch between your return and the tax deducted at source (TDS) details in these forms, the Income Tax Department will send you a notice. You may be asked to correct the discrepancy by filing a revised ITR or explaining the difference. While filing the revised ITR, make sure you report all the figures accurately to avoid further investigation.
If the Income Tax Department believes you haven't disclosed all your income, they may send you a notice for “not disclosing” or “under-reporting” income. This usually happens when income from sources like investments, rent, or freelance work is not fully reported.
To avoid this situation, you must gather all your financial documents, such as salary slips, bank statements, and bills. Now, ensure that every source of income is correctly reported in your ITR.
Filing your ITR before the deadline (usually 31st July of the relevant AY) is important to avoid penalties. If you miss the deadline, the Income Tax Department may send you a notice under Section 142(1)(i) of the Income Tax Act. This notice will require you to submit your return.
You can receive an income tax notice if you fail to report significant financial transactions. Some common examples of these transactions are:
Additionally, credit card payments of Rs. 10 lakh or more and buying or selling property worth Rs. 30 lakh or more are considered high-value transactions. All these transactions, along with their correct source of income, must be accurately reported while filing your ITR.
If you have claimed higher deductions, like House Rent Allowance (HRA) based on fake rent receipts, or deductions under Chapter VI-A without proper documentation, you can receive a scrutiny notice from the Income Tax Department. This usually happens when your deductions do not match the supporting documents.
Please note that misreporting income or deductions is considered a violation of tax laws. Therefore, to avoid an income tax notice, you must maintain accurate records and only claim those deductions and expenses for which you are eligible.
Be aware that the Income Tax Department “randomly” selects taxpayers for scrutiny under Section 143(3) through its AI-based system. This notice is not necessarily an indication of wrongdoing. Instead, it is more of a compliance check to ensure that your income and deductions are as per the Income Tax Act.
If you receive this notice, there’s no need to worry. Simply respond with the required documents and information. If required, clarify any questions the department might have.
The Income Tax Act, 1961 includes several provisions under which the Income Tax Department can issue different types of notices. Below are the key types of income tax notices that salaried individuals should be aware of:
Intimation under Section 143(1):
This is the most commonly received notice. It is sent after the return is processed and can indicate one of the following:
No discrepancies—no further action needed
Excess tax paid—refund will be issued with interest
Tax shortfall—additional payment required along with interest
Notice under Section 143(2) and 143(3):
Issued for scrutiny assessment, this notice is sent when the department wants to examine your income, deductions, or loss claims more closely. If discrepancies are found during assessment, a demand notice under Section 156 may follow.
Notice under Section 156:
This is a demand notice asking you to pay due taxes, interest, or penalties by a specific date.
Notice under Section 142(1):
Issued when the department needs additional documents or clarification related to your filed return. It could also relate to late filing or income mismatch.
Notice under Section 139(9):
Known as a defective return notice, it is sent when your income tax return contains errors or is incomplete. A corrected return must typically be filed within 15 days.
Notice under Section 148:
This notice is issued if the department believes that some income was not reported in earlier returns. You’ll be asked to re-submit income details for a particular assessment year.
Summons under Section 131:
This is a formal summons for appearance to provide evidence, documents, or answers during an inquiry. Ignoring it can lead to legal consequences.
Intimation under Section 245:
Sent when the department intends to adjust your tax refund against any outstanding tax dues from previous years. You’re required to respond within 30 days of receiving this intimation.
Also read: What is taxation
Tips for Responding to an Income Tax Notice:
Stay calm and don’t ignore the notice, as doing so can result in additional penalties.
Read the notice thoroughly, including the section of the Income Tax Act under which it was issued.
Identify the documents or clarifications required.
Consult a tax expert or chartered accountant without delay.
Begin collecting all necessary financial records and documents for the relevant assessment year.
Submit a well-drafted written response within the deadline specified in the notice.
Ensure all supporting documents are valid and accurate.
Maintain a cooperative and transparent approach in all interactions with the Income Tax Department.
If your return contains mistakes, file a revised return promptly.
Attend any hearings or meetings scheduled by the assessing officer.
Receiving an income tax notice doesn’t have to be intimidating if you understand its purpose and respond promptly and cooperatively. Staying organised with your financial records and consulting a tax expert when required can help resolve the matter efficiently. Filing accurate returns and maintaining proper documentation each year can significantly reduce the chances of receiving a notice in the future.
If you are looking for safe investment option, then you can consider investing Bajaj Finance Fixed Deposit. With a top-tier AAA rating from financial agencies like CRISIL and ICRA, they offer one of the highest returns, up to 7.75% p.a.
Investment Calculator | ||
If you missed the deadline (which is usually July 31st of the relevant AY), you can still file a belated return under Section 139(4), before December 31 of the same AY. You may also receive a notice under Section 142(1) asking you to submit it.
Be aware that random scrutiny is part of compliance checks. You receive such notices when your name has been picked randomly by department’s AI system. Instead of worrying, you should simply respond with accurate information and supporting documents.
If land is bought at a price significantly lower than its stamp duty value (by more than Rs. 50,000 or 10% of the purchase price, whichever is higher), the difference may be treated as ‘Income from Other Sources’ under Section 56(2)(x) of the Income Tax Act. This amount becomes taxable in the buyer’s hands, and a notice may be issued if this is flagged during scrutiny.
When buying immovable property (like land or buildings) worth over Rs. 50 lakh, buyers must deduct 1% TDS under Section 194-IA of the Income Tax Act and deposit it using Form 26QB. Failure to do so may lead to a notice from the tax department seeking compliance or explanation for non-deduction.
Not all income tax notices indicate a problem. Many are routine, such as acknowledgments of ITR processing or requests for additional information. However, some notices may relate to tax mismatches, non-disclosure of income, or underreporting. It’s important to understand the notice and respond appropriately without panic.
No, ignoring an income tax notice can lead to serious consequences. Each notice has a specified response time. Missing this deadline could result in penalties, loss of deductions, or even reopening of your case. Always log in to the income tax portal, review the notice, and respond on time.
If a taxpayer fails to respond to an income tax notice, they may face a penalty of ₹10,000 for each default under Section 272A(1)(d). The assessing officer also has the authority to demand written submissions or documentation, and continued non-compliance can escalate the matter further.
To respond to a tax notice, log in to the official Income Tax e-filing portal at incometax.gov.in. Go to ‘Pending Actions’ > ‘E-Proceedings’, locate the notice reference number, review the details, and submit your reply along with any required supporting documents.
Income tax notices are sent for various reasons, such as non-filing of returns, discrepancies in declared income, mismatches with Form 26AS, high-value transactions, or incorrect claims of deductions. It is the department’s way of seeking clarification, initiating assessments, or ensuring tax compliance.
To appeal against an order or notice, the taxpayer must file Form 35 through the e-filing portal. A prescribed appeal fee is applicable and depends on the assessed income. Once submitted, the appeal is heard by the Commissioner of Income Tax (Appeals) who will examine and decide the case.
Long-term verses short-term deposits
Achieve your financial goals with Fixed Deposit
Four ways to make the most of your Fixed Deposit
How Fixed Deposits support financial independence
Trusted by 50 million+ customers in India, Bajaj Finance App is a one-stop solution for all your financial needs and goals.
You can use the Bajaj Finance App to:
Download the Bajaj Finance App today and experience the convenience of managing your finances on one app.
Now request money from your friends and family and make instant payments.
