Why Did You Receive an Income Tax Notice? Common Reasons & How to Handle It
Receiving an income tax notice can feel intimidating, but it doesn’t always mean something is wrong. The Income Tax Department of India issues various types of notices for different reasons – sometimes just to confirm information, and other times to seek clarification or initiate a scrutiny process.
What Is an Income Tax Notice?
An Income Tax Notice is a formal communication issued by the Income Tax Department to a taxpayer for various reasons such as discrepancies in filed returns, failure to file returns, or for scrutiny under specific provisions of the Income Tax Act.
These notices may be served electronically through the official income tax e-filing portal or delivered physically to the taxpayer’s registered address.
Understanding the nature of the notice, why it was sent, and how to respond is crucial to ensure compliance and avoid unnecessary penalties.
1. You Missed the ITR Filing Deadline
If you didn’t file your Income Tax Return (ITR) on time, the department might issue a notice under Section 142(1) or Section 148, asking you to file it or explain the delay.
Example: Suppose your salary was above the taxable limit, but you forgot to file your return. You may receive a notice even if no tax was due.
What to Do: File your return immediately and reply through the income tax portal with a valid reason.
2. Your Reported Income Doesn’t Match TDS or AIS Data
The tax department compares your ITR with records like Form 26AS, Annual Information Statement (AIS), and TDS/TCS entries. If there’s a mismatch — for instance, you forgot to report interest income — a Section 143(1) notice may be issued.
What to Do: Log in to the portal, review Form 26AS and AIS carefully, and file a revised return if needed.
3. High-Value Transactions Not Reported
The government keeps an eye on high-value transactions such as:
Cash deposits over ₹10 lakh
Credit card payments exceeding ₹2 lakh
Property purchases, mutual fund investments, etc.
If these transactions don’t match your reported income, expect a scrutiny notice.
What to Do: Disclose all major transactions honestly. Use the AIS to cross-check before you file.
4. Claimed Excess Deductions or Exemptions
If you’ve claimed unusually high deductions under Section 80C, 80D, or HRA that don’t align with your income level, a Section 143(2) notice for scrutiny could follow.
What to Do: Keep valid documents like rent receipts, LIC premium proofs, and medical bills handy. Don’t over-claim just to save tax.
5. You Missed Reporting Other Income Sources
Many people forget to include:
Freelance or consulting income
Capital gains from stocks or mutual funds
Rental income
Interest from fixed deposits
Even small amounts, if not reported, can trigger a notice.
What to Do: Declare all income - even if tax has already been deducted at source.
6. TDS Deducted but Not Reflected in Form 26AS
Sometimes, employers or banks deduct TDS but don’t deposit it properly, or use the wrong PAN.
What to Do: If your Form 26AS doesn’t reflect the TDS, talk to the deductor. Raise a grievance or correct your ITR accordingly.
7. Random Scrutiny Selection
Not all scrutiny notices are due to mistakes. The Income Tax Department also randomly selects cases under Section 143(2).
What to Do: Just ensure your income details and documents are in order. If selected, co-operate and submit the requested proofs.
8. Non-Disclosure of Foreign Assets or Income
If you have foreign bank accounts, property, or investments and haven’t disclosed them, it’s a serious offense under the Black Money Act.
What to Do: Always declare foreign assets and income in the ITR — even if they’re not taxable in India.
9. Filing a Defective or Incomplete Return
Errors like missing bank account details, invalid deductions, or incorrect personal info can lead to a Section 139(9) notice for a defective return.
What to Do: Correct the return by logging in to the income tax portal and submitting a revised version within the deadline.
10. Excess Refund Claim Without Justification
Claiming a large refund - especially when your tax liability was minimal - may invite a notice.
What to Do: Only claim genuine refunds, and keep all supporting documents like TDS certificates, investment proofs, etc.
How to Respond to an Income Tax Notice?
Read it carefully: Check which section it falls under and the reason given.
Stick to the deadline: Most notices have a 15-30 day response time.
Verify your records: Compare your ITR with Form 26AS, AIS, and TDS certificates.
Reply online: Use the e-proceedings section of the income tax portal.
Revise the return (if needed): File under Section 139(5) if there’s an error.
Take help if needed: If unsure, consult a CA or tax professional for guidance.
How to Avoid Income Tax Notices in the Future?
Always file your ITR on time
Disclose all income, including interest, capital gains, and side income
Match your return with Form 26AS and AIS before submission
Don’t claim unjustified deductions
Report all high-value transactions
E-verify your return within 30 days of filing
FAQ's About Income Tax Notice
1. Why did I receive an income tax notice?
You may receive an income tax notice due to reasons such as delayed filing, mismatched income details, unreported income, high-value transactions, or excessive deductions claimed.
2. What should I do if I receive an income tax notice?
Read the notice carefully, check the section under which it is issued, verify your tax details, and respond within the given deadline. If required, consult a tax professional.
3. What happens if I ignore an income tax notice?
Ignoring a notice can result in penalties, additional tax liabilities, or even legal action in serious cases. It is advisable to respond on time.
4. What is the penalty for non-compliance with a tax notice?
Penalties vary based on the type of notice. For non-filing of returns, fines under Section 234F apply, while scrutiny notices may result in additional tax demand and penalties.
5. How can I avoid receiving an income tax notice?
Ensure timely filing, report all income sources, verify TDS details in Form 26AS, avoid excessive deductions without proof, and e-verify your return.
