Income Tax Notice

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An income tax notice is an official communication dispatched by the Income Tax Department to a taxpayer, indicating a discrepancy or issue with their tax affairs. These notices may be issued for a range of reasons, such as non-filing or incorrect filing of income tax returns, conducting assessments, requesting additional information, and more. When a notice is received, it’s crucial for the taxpayer to address it promptly within the specified timeframe and engage with the tax authorities to resolve any outstanding matters.

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Types of Income Tax Notices

The income tax department sends different types of ITR notices to taxpayers depending on the cause of the notice. These notices are as follows –

Notice under Section 142(1)

Notice sent under Section 139(9)

Notice under Section 148

Notice sent under Section 156

Intimation under Section 143(1)

Notice under Section 143(2)

Notice under section 131

Notice under section 245

What are the common reasons for Income Tax notices?

  • Mismatch in Income Reported: Differences between reported income and government records.
  • High-Value Transactions: Engaging in transactions that exceed certain thresholds.
  • Failure to File Tax Return: Not filing a return despite having taxable income.
  • TDS Mismatch: Discrepancies between claimed TDS and TDS as per Form 26AS.
  • Claiming Excessive Refunds: Seeking refunds that are disproportionate to taxes paid.
  • Underreporting of Income: Omitting or underreporting income streams.
  • Discrepancies in Foreign Income: Failure to accurately report foreign income.
  • Routine Scrutiny: Being randomly selected for detailed scrutiny.
  • Errors in Filing: Mistakes in the tax return form.
  • Not Reporting Previous Years’ Income: Failing to report income deferred from previous years.
  • Multiple Form 16s: Incorrect consolidation of multiple employment income sources.
  • Incorrect PAN Details: Errors in the listed Permanent Account Number.
  • Capital Gains Misreporting: Incorrect reporting of capital gains or losses.
  • Tax Credits Not Matched: Claiming tax credits without proper evidence.
  • Property Transaction Reporting: Inaccurate reporting of property transactions.
  • Charitable Donation Claims: Discrepancies in claims for charitable donation deductions.
  • Investment Proof Missing: Lack of evidence for claimed investment deductions.
  • Cash Deposits Post-Demonetization: Large cash deposits were unaccounted for during demonetisation, and there were no sources for how the cash was earned.
  • Improper Asset Valuation: Incorrect asset valuation on tax returns.
  • Tax Evasion Suspicions: Transactions suggesting potential tax evasion.
  • Non-Disclosure of Previous Notices: Ignoring previous income tax notices.
  • Huge Agricultural Income Claims: Suspiciously large agricultural income claims.
  • Unexplained Credit or Investments: Large, unexplained credits or investments in accounts.
  • Revision of Returns Filed: Repeated revisions of already filed returns.
  • High-Risk Transactions: Involvement in high-risk financial transactions.
  • Disparity in Lifestyle and Reported Income: Lifestyle does not match reported income.
  • Huge Medical Expenditure Claims: Disproportionate claims for medical expenses.
  • Relief Claimed Under Section 90/91: If double taxation relief is inappropriately claimed and Form 67 is not filed, the claim under Section 90/91 will be rejected.
  • Failure to Report a Bank Account: Omission of a bank account, especially foreign accounts and mandatory to disclose. Assessment can be done backdated for 14 years.
  • Non-compliance with Statutory Obligations: Failing to comply with required statutory filings.
  • Frequent Changes in Address or Contact Details: Frequent updates to contact information that raise suspicion.
  • Failure to Report Windfall Gains: Not reporting one-time or unusual income gains.
  • The discrepancy in Self-assessment Tax Payments: Payments do not match tax return figures.
  • Not Reporting Retirement Account Distributions: Omissions in reporting withdrawals from retirement accounts.
  • Stock Market Transactions: Misreporting or not reporting gains from stock transactions.
  • Failure to Submit Required Forms or Documents: Missing forms or documents with the tax return.
  • Claiming Depreciation Incorrectly: Errors in calculating or claiming depreciation on assets.
  • Claiming Deductions for Non-Eligible Expenses: Deductions claimed for expenses not legally deductible.
  • Mismatch in Insurance Premiums and Income: Claiming insurance premiums inconsistent with income level.
  • Claiming Expenses on Nonexistent Properties: Claims related to properties that do not exist.
  • Non-Reporting of Partnership Income: Failure to report income from partnerships.
  • Education Expense Claims Misreported: Errors in claiming deductions for education expenses.
  • Misuse of PAN by Another Person: Someone else uses your PAN for financial transactions.
  • Failure to Report Side Business or Freelance Income: Not reporting income from side businesses or freelance work.
  • Using Incorrect Tax Forms: Filing a tax return using incorrect or outdated forms.
  • Misreporting Rental Income: The income earned from rental properties needs to be correctly reported where the owner is identified as the tax-payer and not the person receiving the income
  • Incorrect Carry Forward of Losses: Errors in carrying or setting off previous years’ losses.
  • Joint Account Transactions Not Reported: Failure to report transactions from joint accounts.
  • Unreported Sale of Assets: Not reporting the sale of financial or physical asset

What to do when the notice is received?

  • Read the Notice Carefully: Understand the type of notice, the tax year in question, and the specifics of what is being asked or stated.
  • Check the Document Identification Number (DIN): Ensure the notice has a valid DIN per tax department guidelines for authenticity.
  • Review Your Tax Return: Compare the information in the notice with your tax return for the specified year to understand any discrepancies or issues.
  • Gather Documentation: Collect all relevant documents, such as bank statements, investment proofs, and previous tax returns, that may be needed to respond to or comply with the notice.
  • Meet Deadlines: Pay close attention to the deadlines specified in the notice for responding or making payments, if applicable.
  • Seek Professional Advice: Consult with a tax professional or accountant, such as, for expert advice on proceeding and ensuring proper compliance.
  • Prepare and Send Your Response: Draft a response addressing the issues raised in the notice. Include any requested documentation, and keep copies of all correspondence.
  • Follow-up: Monitor the situation after your response to ensure it has been resolved or prepare for further communication from the tax department.

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important things you should know

Questions And Answers

The Income Tax Department sends notices to taxpayers for various reasons such as non-filing of returns, filing errors, or requests for additional information. These notices, also referred to as income tax issue letters, aid in ensuring compliance with tax laws and rectifying any discrepancies, thereby upholding fairness in the tax system.

The code EXC -001 signifies that a transaction beyond the permissions of the Income Tax Act has been conducted. For instance, it may relate to cash transactions exceeding INR 10 lakh in a month.

Yes, even salaried individuals can receive income tax notices. The notice under section 143(1) is an intimation sent by the ITD to every taxpayer. Additionally, other notices may be issued if there are suspicions of concealed income or other grounds.

Notices issued by the ITD will be delivered to your registered email. You can also view notices through the income tax notification portal, though not all notices may be available there. For further inquiries, you can visit the ITD or authenticate notices on the Income Tax website.

Yes, the Income Tax Department can issue notices for current account transactions exceeding certain thresholds. For instance, transactions exceeding Rs 50 lakhs in a financial year should be disclosed to the ITD.

Understanding the reason behind the notice is crucial. It may be requesting specific details or rectification of errors. Responding within the specified timeframe is essential to avoid potential penalties.