Reasons for Income Tax Notices and Ways of Handling Them

Receiving a notice from the income tax department is alarming for a taxpayer. It is a legal notification that alerts taxpayers about the issues with their tax accounts.

People might receive an income tax notice due to various reasons. These reasons include delayed ITR filing, mismatch of declared and actual details etc.

The income tax department issues IT notices under sections 148, 139(9), 143(1), 143(2), 143(3), 144, 147 and 245 of the Income Tax Act, 1961. This article enlists different reasons for receiving an income tax notice and highlights how to respond to them.

Common Reasons for Receiving Income Tax Notice

There are chances that a taxpayer can receive notice even after regularly filing the income tax return. Moreover, an IT notice doesn’t need to be a sign of bad news; sometimes, it is sent as information. Here are some possible reasons for receiving an IT notice:

1. Inaccurate Amount of TDS

A high possibility of receiving an IT notice exists if the TDS mentioned on the return is inaccurate. The TDS amount on the IT return should match the amount mentioned on Form 26AS (Tax Credit Statement) and Form 16 or 16A. If the values do not match, the income tax department issues a legal notice under section 143(1) of the Income Tax Act.

One must, therefore, match the TDS amount on the ITR form with the amount mentioned on the Tax Credit Statement. Moreover, one needs to connect with the TDS deductor for updation in their account.

2. Delayed ITR Filing

Indian citizens must regularly file their income tax return if their gross annual earning is equal to or more than 2.5 Lacs. One might receive an automated IT notice under section 139(1) or 142(1)(i) for non-filing or delayed ITR filing. Moreover, the person will also be liable to pay a late fee if they fail to pay taxes within the due date.

3. Mismatch in Actual Income and Declared Income

If the income tax department detects any mismatch in the actual and declared income, it might issue a notice under section 139(9) or 143(1). Therefore, one needs to be honest about their earning, including bank interest and fixed deposits, in the tax return.

4. Mysterious or High-Value Transaction

As per the latest income tax notification, a notice is issued under section 143(2) if a mysterious or high-value transaction is detected from a person’s account concerning their declared income. The notice will enquire about the sources of such high-value transactions or investments.

The taxpayer must respond to this notice with a satisfactory reply stating the sources of their income to avoid any penalty. Otherwise, the income tax department can take any legal action against their transactions.

5. Previous Evasion of ITR

As per the Income Tax Act, Internal Revenue Service has the authority to re-evaluate previous returns. The tax officer can choose any previous tax return for reassessment and send a notice under section 148 of the Income Tax Act.
However, a notice can only be issued under section 147 when the assessing officer has a valid reason to prove that the return has escaped assessment. Hence, returns must be filed regularly to avoid notice or any penalty against the previous evasion of ITR.

6. Possible Error in Income Tax File

Sometimes, the income tax returns are subject to possible errors and omissions. If the assessing officer detects any error in a person’s return, they might receive a notice under section 139(9) for revision. In this case, the person must file a revised ITR within 15 days of receiving the notice.

Cross-checking IT returns before the submission is of utmost necessity. One can also take help from an expert in case of any difficulty.

7. Random Scrutiny by the Assessing Officer

The income tax department can randomly pick one’s return for scrutiny. In this case, the person might receive a notice from the department under section 143(2). The scrutiny notice can be based on various discrepancies. These include information mismatches, errors in the tax return form, missing documents etc.

The tax department can impose a penalty of INR 10,000/- if a person fails to respond to this notice on time.

What to do After Receiving an Income Tax Notice?

The first response is not to panic. However, the notice should not be taken lightly either. One must respond to an income tax notification immediately. The response may differ based on the reason for the notice. However, the process of replying to any notice is the same. Here is a detailed walkthrough:

• Visit the official website of the Income Tax Department of the Government of India.
• Use the PAN number as the user ID and enter other credentials to log in to the account.
• Open the e-File menu and check for the notices in the account.
• Click on the “Provide” option to read the detailed description of the notice and submit a response. Professional help may also be taken while responding.
• Check for any notification periodically, after submitting the response.

Wrapping Up

If one receives any notification from the income tax department, the situation must be dealt with calmly. All the required documents must be submitted on time. And most importantly, one must remain truthful. Not replying to a tax notice is never the solution while dealing with the income tax department. It might result in a further penalty. Online income tax return filing is one of the easiest ways to deal with various income tax notifications.