An Income Tax Notice is a formal communication sent by the Income Tax Department (ITD) of India to a taxpayer. It's not necessarily a cause for panic, but it always requires a timely and appropriate response. The ITD issues notices for various reasons, mainly to seek clarification, demand additional information, or highlight discrepancies in a taxpayer's financial dealings or tax filings.

 

Reasons for Receiving an Income Tax Notice

Notices are issued under different sections of the Income Tax Act, 1961, each for a specific purpose. Common reasons include:

• Defective Return (Section 139(9)): Your filed Income Tax Return (ITR) has errors, missing information, or inconsistencies (e.g., mismatch in TDS, incorrect form used, incomplete disclosures).

• Intimation after Processing (Section 143(1)): This is a preliminary intimation sent after your ITR is processed by the Centralized Processing Centre (CPC). It might indicate:

  • Confirmation that your return has been processed.

  • A tax demand (if tax payable is higher than what you paid).

  • A refund due (if tax paid is more than your liability).

  • No change in tax liability.

  • It's important to check this intimation carefully for any adjustments made by the department.

• Inquiry Before Assessment (Section 142(1)): The Assessing Officer (AO) requires additional documents, information, or clarification before completing the assessment of your income. This can also be issued if you haven't filed your return and the AO wants you to file it.

• Scrutiny Assessment (Section 143(2)): This is a more serious notice, indicating that your return has been selected for detailed scrutiny to verify the correctness of income, deductions, claims, and tax paid. Scrutiny can be "limited" (focused on specific issues) or "complete" (a detailed review of the entire return).

• Income Escaping Assessment (Section 148): The AO believes that some of your income has escaped assessment (i.e., you haven't declared it or it wasn't assessed correctly in a previous year). This notice requires you to file a fresh return or provide details.

• Demand Notice (Section 156): This notice is issued when the ITD determines that you owe additional tax, interest, penalty, or any other sum. It specifies the amount due and the deadline for payment (usually 30 days). This often follows an intimation under Section 143(1) if there's a demand.

• Adjustment of Refund (Section 245): If you are due a refund for the current year, but you have outstanding tax demands from previous years, the department may issue this notice to propose adjusting your refund against the old demand.

• High-Value Transactions: Discrepancies between your declared income and high-value transactions reported by banks or other institutions (e.g., large cash deposits, property sales, share transactions) can trigger notices.

• TDS Mismatch: If the TDS claimed in your ITR doesn't match the data in Form 26AS or Annual Information Statement (AIS)/Taxpayer Information Summary (TIS).

• Non-Filing of ITR: If you were liable to file an ITR but didn't, the department might issue a notice.

 

What to Do When You Receive an Income Tax Notice

1. Don't Panic: Read the notice carefully to understand the section under which it's issued and the specific reason for its issuance.

2. Verify Authenticity: Always verify the authenticity of the notice. Genuine notices from the Income Tax Department will have a Document Identification Number (DIN). You can verify this DIN on the e-filing portal under "Authenticate Notice/Order issued by ITD" in the "Quick Links" section or by logging into your account.

3. Identify the Core Issue: Understand exactly what the ITD is asking for. Is it a request for information, a demand for tax, or an intimation of a processing error?

4. Gather Documents: Collect all relevant documents and information pertaining to the assessment year mentioned in the notice. This could include:

   • Copy of the ITR filed for that year.

   • Form 16/16A (TDS certificates).

   • Bank statements.

   • Investment proofs.

   • Proof of income sources.

   • Any other document specifically requested in the notice.

5. Respond Promptly: Notices come with a deadline (often 15 or 30 days). Respond within the stipulated time frame to avoid penalties, further legal action, or best judgment assessment (where the AO assesses your income based on available information without your input). You can sometimes request an extension if genuinely needed.

6. Respond Online: Most responses to income tax notices can be filed online through the e-filing portal.

   • Log in to incometax.gov.in using your PAN/Aadhaar and password.

   • Check your "Dashboard" or "Pending Actions" for any notices or e-proceedings.

   • Navigate to the relevant section (e.g., "e-Proceedings," "Respond to Outstanding Demand," or "Compliance Portal").

   • Upload the requested documents and provide a clear, concise explanation.

7. Seek Professional Help (If Complex): If the notice is complex, involves large sums, or you're unsure how to proceed, it is highly advisable to consult a tax professional like a Chartered Accountant (CA). They can help you understand the implications, draft a proper response, and represent you if required.

8. Keep Records: Always maintain a copy of the notice, your response, and all supporting documents submitted for future reference.

 

Registration Process on the Income Tax e-filing Portal (for Responding to Notices)

To respond to an income tax notice online, you must be registered on the Income Tax e-filing portal. The registration process is straightforward:

1. Visit the e-Filing Portal: Go to https://www.incometax.gov.in/iec/foportal/.

2. Click "Register": Located on the top right corner of the homepage.

3. Select User Type: Choose "Taxpayer" (most common for individuals). Other options include "Tax Deductor & Collector," "Chartered Accountant," etc. Click "Continue."

4. Enter PAN: Provide your Permanent Account Number (PAN) and click "Validate." The system will check if your PAN is already registered or if it's valid.

5. Basic Details: Enter mandatory details as per your PAN (Name, Date of Birth/Incorporation, Gender, Residential Status). Click "Continue."

6. Contact Details: Enter your Primary Mobile Number, Email ID, and your current Address. These details will be used for communication and OTP verification. Click "Continue."

7. OTP Verification: You will receive two separate One-Time Passwords (OTPs) on your primary mobile number and email ID. Enter these OTPs into the respective fields. OTPs are valid for 15 minutes, and you typically get 3 attempts. Click "Continue."

8. Confirm Details: Review all the information you have provided. If any changes are needed, click "Edit." Otherwise, click "Confirm."

9. Set Password: Create a strong password for your e-filing account. It must be 8-14 characters long, include a mix of uppercase and lowercase letters, a number, and a special character. You can also set a personalized message. Click "Register."

10. Successful Registration: A confirmation message will be displayed indicating successful registration. You can then click "Proceed to Login" to access your new e-filing account.