Recently, the Income Tax Department has been issuing several notices to different taxpayers. Some common reasons for this issuance are differences in income disclosure, past tax evasion, delays in filing income tax returns (ITR), or not reporting high-value transactions. These notices ensure that taxpayers comply with the law and pay the correct amount of taxes.

Now, if we talk about some common notices, generally, you receive a notice under Section 142(1). It is issued in two situations: if the tax department needs more information after you’ve filed your return or if you haven’t filed it and are being asked to submit it. Next, a notice can be issued under Section 143(1) once your return is filed. In this case, the Central Processing Centre (CPC) checks for errors or incorrect claims and adjusts your total income.

Additionally, you can receive a notice under Section 143(2), which is a “scrutiny notice”. It has been issued so that the department can review your return for under-reported income or excessive loss claims. Lastly, Section 148 deals with “income-escaping assessments”. If the officer suspects unreported income, they may issue this notice,

Let’s gain more clarity on income tax notices and study the six different situations in which a department can send you a notice. 

• Mostly, in cases of TDS mismatch, the department issues an income tax notice. To avoid this, make sure your ITR matches the details in Form 26AS and Form 16.
• Also, you can receive a notice if you fail to report notified high-value transactions or do not file your ITR.
• Additionally, claiming bogus deductions and expenses can lead to tax scrutiny under section 148. 

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:

1. Mismatch in TDS  

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.

2. Inaccurate reporting in Income Tax Returns (ITR)  

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.

3. Non-Filing of 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.

4. Failure to report high-value transactions

You can receive an income tax notice if you fail to report significant financial transactions. Some common examples of these transactions are:

• Depositing Rs. 1 crore or more in current accounts.
• Depositing Rs. 10 lakh or more in savings accounts.
• Withdrawing Rs. 1 crore or more from current accounts.
• Receiving Rs. 2 lakh in cash for selling goods or services.

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.

5. You claimed bogus deductions and expenses

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.

6. The department wants to start a random scrutiny  

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.

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