Income Tax Notice

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    What is an Income Tax Notice?

    It’s an official communication from the ITD highlighting a potential issue with your tax filing. Unlike tax intimation slips that simply inform you of your tax liability or refund, an income tax notice is an official communication from the Income Tax Department (ITD) requiring your attention and action. It highlights a potential discrepancy or issue with your tax filing.

    What to Expect in the Notice?

    It will outline the specific information or clarification needed from you. It may or may not include a demand for additional tax payment or penalty. Most notices come with a unique Document Identification Number (DIN) for reference. Overall, receiving an income tax notice may not be ideal, but understanding its purpose and taking timely action can help you handle the situation smoothly.

    Income Tax Notices: Types and Responses

    It will outline the specific information or clarification needed from you. It may or may not include a demand for additional tax payment or penalty. Most notices come with a unique Document Identification Number (DIN) for reference. Overall, receiving an income tax notice may not be ideal, but understanding its purpose and taking timely action can help you navigate the situation smoothly.

    Income Tax Notices: Types and Responses

    Income tax notices can be confusing, but understanding the different types and how to respond can save you time and stress. Here are some of the common notices:

    Notice Under Section 142(1): Missing Information

    The ITD needs additional documents to process your return. Reply online via the Income Tax Department portal. Provide the requested documents or explain why you can’t furnish them. Ignoring the notice is not an option.

    Notice Under Section 143(1): Intimation Notice

    This notice follows return processing and informs you of any tax due, refunds, or discrepancies (deductions disallowed, Form 26AS mismatch, penalty/interest miscalculations).

    Agree with Notice: Pay any tax due using the correct challan number. Refunds will be automatically deposited.

    Disagree with Notice: File for online rectification under Section 154 or appeal under Section 246A.

    No Discrepancy: No action required.

    Notice Under Section 143(2): Scrutiny Notice

    The ITD selects your return for a more detailed examination to ensure accurate income reporting and tax payment. Scrutiny can be:

    Limited: Focused on specific income/deductions.

    Complete: Entire return is examined.

    Manual: Based on yearly ITD parameters.

    Submit physical documents requested by the department. Failure to respond within 30 days may lead to further action under Section 143(3) or 144.

    Notice Under Section 148: Notice of Income Escape Assessment

    The ITD suspects you haven’t disclosed your full income. They’ll outline the reasons for suspicion and give you a chance to explain.

    Valid Reasons: Pay the tax and penalty.

    Invalid Reasons: Challenge the notice.

    Notice Under Section 156: Demand Notice

    A demand to pay tax or penalty within 30 days, specifying the amount and due date.

    Agree with Demand: Pay online using the challan number provided.

    Disagree with Demand: Explain your reasons online and consider seeking a court stay order to avoid a penalty on the demand.

    Partly Agree: Pay the agreed portion and explain your disagreement with the rest. Consider seeking a court stay order.

    Notice Under Section 245: Adjusted Refund Notice

    The ITD may adjust your refund to settle outstanding tax liabilities from past years.

    Agree: Respond through the tax portal.

    Disagree: Provide reasons for disagreement through the portal.

    Notice Under Section 139(9): Defective Return Notice

    The ITD believes your return has errors or missing information. Identify the mistake/missing information mentioned in the notice. Refile your return through the tax portal, addressing all issues raised.

    Reasons for receiving an Income Tax Notice

    Receiving an income tax notice can be disturbing. Here’s some of the common reasons why you might encounter one:

    1. TDS Mismatch: There’s a discrepancy between the Tax Deducted at Source (TDS) you claim in your return and the actual amount recorded by the department (usually found in Form 16 or Form 26AS).
    2. Income Discrepancy: The income you reported in your return doesn’t match the information received by the Income Tax Department, potentially from sources like employers or banks (Form 26AS).
    3. Excessive Deductions: You’ve claimed deductions exceeding the permissible limits.
    4. Return Issues:
      • Defective Return: Errors, missing information, or inconsistencies in your tax return.
      • Late or Unfiled Return: You haven’t filed your return within the deadline or haven’t filed at all.
    5. Unreported Accounts & Transactions: You failed to report active bank accounts or high-value transactions required by the return form.
    6. Random Scrutiny:  The ITD randomly selects returns for a more detailed examination.
    7. Change of Job:  You might have forgotten to disclose income earned from your previous employer during a mid-year job change.

    Tips to Avoid Income Tax Notices

    Always reconcile the Tax Deducted at Source (TDS) you report in your return with the amount reflected in Form 26AS. This form provides a consolidated view of your TDS information and helps identify any discrepancies.

    The Income Tax Department receives information about certain high-value transactions. Be aware of the reporting thresholds for:

    Cash deposits/withdrawals exceeding Rs. 10 lakh in savings/fixed deposits. Total annual cash deposits/withdrawals exceeding Rs. 50 lakh in any account. Purchase of immovable property exceeding Rs. 30 lakh. Cash payments for credit card bills exceeding Rs. 1 lakh. Sale of foreign currency exceeding Rs. 10 lakh. Cash payments for prepaid instruments exceeding Rs. 10 lakh.

    Deposits exceeding Rs. 1 crore. Foreign travel expenses exceeding Rs. 2 lakh. Electricity bills exceeding Rs. 1 lakh. Income from foreign sources.

    Keep all your financial documents, such as receipts, invoices, and bank statements, neatly organized. This will simplify record-keeping and allow you to easily access information if needed.

    Don’t wait until the last date to file your tax return. This can lead to errors and missed deadlines, potentially triggering a notice. Make it a habit to file early to ensure a smooth process.

    Never understate your income or overstate your deductions. The Income Tax Department has access to various sources of information, and discrepancies can lead to a notice and potential penalties.

    Responding to an Income Tax Notice: A Step-by-Step Guide

    1. Verify the Notice:
    • With online scams being prevalent, ensure the notice is legitimate before responding.
    • Log in to the official Income Tax Department e-filing portal (https://www.incometax.gov.in/iec/foportal/).
    • Go to the section for “Authenticate notice/order issued by ITD.”
    • Enter your PAN and a One-Time Password (OTP) sent for verification.
    • If the notice is genuine, it will be displayed on the portal.
    1. Understand the Notice:
    • Carefully read the entire notice. It should include a Document Identification Number (DIN) for reference. Identify the reason for the notice (missing information, discrepancy, etc.). The notice will likely offer options:
      • Agree with the findings (if applicable).
      • Respond with a disagreement.
      • Upload documents to support your claims.
    1. Respond Promptly:
    • Don’t ignore the notice! Each notice has a stipulated deadline for response. Ignoring it can lead to penalties or legal action.
    1. Respond Through the Portal (Most Cases):
    • In most instances, you can respond directly through the e-filing portal. Utilize the provided options to:

    Agree with the notice and make any necessary payments.

    Explain your disagreement and upload supporting documents.

    1. Seek Professional Help (If Needed):
    • If you’re unsure about the notice or require assistance with the response, don’t hesitate to seek professional guidance. Consult a tax advisor or a lawyer specializing in tax law for help understanding the notice, formulating a response, and navigating the process.

    Corporate Raatsa Consulting’s team of legal and tax professionals can provide the specialized knowledge and experience needed to navigate income tax notices effectively. We handle the time-consuming process of responding to the notice, allowing you to focus on core business activities. Our guidance can minimize the risk of errors or missed deadlines, potentially saving you from penalties and legal complications.

    • An income tax notice is an official communication from the Income Tax Department (ITD) requiring your attention and action. It highlights a potential discrepancy or issue with your tax filing.

    • This information will be clearly stated in the notice. Act promptly to avoid late fees.

    • The notice may suggest documents or records needed. Gather bank statements, pay stubs, or receipts relevant to the issue.

    • Common responses include submitting missing documents, requesting clarification, or filing an amended return.

    • Proper record-keeping, accurate filing, and timely payments minimize the chance of future issues.

    • There's a discrepancy between the Tax Deducted at Source (TDS) you claim in your return and the actual amount recorded by the department .

    • Almost always, yes. Ignoring the notice can lead to penalties and further complications.