Dealing with a tax notice? Correct errors via updated ITR and pay dues

If your claim was genuine, submit documents to back it up

Tax authorities have stepped up scrutiny of high-earning corporate leaders, flagging alleged discrepancies in the returns of dozens of senior executives earning over ₹50 lakh a year, according to media reports. The anomalies include undeclared foreign assets and overseas income, underreported stock-linked incentives, and inflated perquisite claims. Tax authorities have issued notices and given these individuals an opportunity to file revised income tax returns (ITRs) before stricter penalties and further action follow.

 

Overseas properties in spouse’s name 

Resident and ordinarily resident (ROR) individuals in India must disclose all foreign assets in Schedule FA (Table C) of their ITR. This obligation applies to legal owners as well as beneficial owners (those who fund the asset) and beneficiaries (those who derive benefit from it), even if the asset is in someone else’s name.

 

“Many residents wrongly assume that foreign properties held in the name of a spouse or minor child need not be disclosed because they are not the ‘legal owner’. However, disclosure under Schedule FA is based on beneficial ownership or beneficiary status. If the individual funded the asset or derives benefit from it, non-reporting amounts to a lapse,” says Radhika Viswanathan, executive director, Deloitte India.

 

Foreign shares and overseas accounts 

Resident individuals who hold foreign shares or overseas deposits must disclose them in Schedule FA, even if they hold them only as beneficial owners or beneficiaries. They must report foreign depository accounts under A1, custodial accounts under A2, and foreign shares under A3 (equity/debt interest) or Part B (financial interest in any entity).

 

“Many residents fail to report foreign demat, bank, broker or employee stock option plan (Esop)-linked accounts because they do not consider them ‘assets’. Others assume disclosure applies only to legal ownership or only when income is taxable. However, Schedule FA requires reporting of all foreign financial accounts, regardless of income,” says Viswanathan.

 

When disclosing foreign accounts and shares, they must provide details such as the country, institution name, account number, opening date, peak and closing balances, investment value, and income earned. Disclosure is mandatory even if the income is exempt abroad.

 

In all the above cases (foreign property, shares and accounts), taxpayers cannot revise past returns after the deadline, but they should ensure full disclosure in future filings after confirming ROR status. “They may also use the proposed six-month compliance window announced in the Union Budget 2026 to voluntarily correct earlier non-disclosures of foreign assets,” says Viswanathan.

 

Crypto payments from overseas clients 

Taxpayers sometimes do not disclose cryptocurrency payments received from foreign clients, assuming such receipts are informal or outside the tax net. Many treat them only as capital gains instead of reporting the fair market value as business or professional income on the date of receipt, which can lead to underreporting of tax liability. The use of foreign crypto platforms, where the mandatory 1 per cent tax deducted at source (TDS) on virtual digital asset (VDA) transactions is not deducted, can also create reporting mismatches when authorities reconcile exchange data with tax returns.

 

“Taxpayers must report cryptocurrency received from foreign clients as taxable income at fair market value in Indian rupees on the date of receipt and disclose all such transactions under Schedule VDA, as they are governed by Section 115BBH. They should maintain proper records, ensure compliance with the 1 per cent TDS requirement under Section 194S, particularly in peer-to-peer or offshore cases, and make appropriate disclosures of foreign income or overseas-held crypto assets in their tax returns,” says Akhil Chandna, partner and global people solutions leader, Grant Thornton Bharat.

 

Taxpayers should file a revised return to correctly report crypto income and disclose it under the relevant schedule. If the revision window has closed, they can file an updated return (ITR-U) within the prescribed time limits by paying the applicable additional tax.

 

Inflating perquisite and reimbursement claims 

Salaried taxpayers sometimes try to reduce taxable income by overstating rent, submitting unverifiable rent receipts, claiming tax-exempt travel reimbursements without travel, or inflating bills. Some restructure salary components as allowances or reimbursements to claim ineligible exemptions. Others claim deductions without maintaining supporting documents.

 

“Perquisites such as housing and travel allowances, and reimbursements should be valued and reported strictly according to employer records and income tax rules, without inflating claims to reduce tax. Taxpayers should maintain proper documentation—rent agreements, bank transfer proofs, genuine travel bills—and reconcile Form 16 with payroll records to ensure they claim only eligible exemptions,” says Chandna.

 

Taxpayers should file a revised or updated return to withdraw overstated exemptions, correctly disclose perquisites, and pay the additional tax with interest. They should back legitimate claims with proper documentation submitted through the e-proceedings portal.

 

Bogus donation claims 

Sometimes, donors make donations through banking channels and later receive the money back in cash, minus a commission.

 

“A list of institutions approved for tax exemption is available on the Income Tax Department’s official portal. Taxpayers should verify that the donee holds valid registration, such as under Section 80G, and check whether the eligible deduction is 50 per cent or 100 per cent. Donations must be made through recognised banking channels to maintain a clear audit trail,” says Neeraj Agarwala, partner, Nangia & Co LLP.

 

If a taxpayer wrongly claimed a deduction, they can file an updated return, withdraw the claim, and pay the differential tax with interest. If the donation was genuine, they should respond with supporting documents such as valid receipts and proof of payment. “Taxpayers should respond factually and substantiate their position with proper documentation,” says Agarwala.

 

How to respond to a notice

Taxpayers who receive such notices should verify them on the e-filing portal using the document identification number (DIN). “They should reconcile the mismatch with their annual information statement (AIS), taxpayer information summary (TIS), and Form 26AS data,” says Vishwas Panjiar, founder, SVAS Business Advisors.

 

Taxpayers may not be able to file a revised return since the deadline has passed, but they can still correct errors by filing an ITR-U and paying the applicable tax, interest, and an additional levy.

 

“If there is an error in the ITR, consider filing an ITR-U. If the claim is genuine, submit the necessary documentation in response to the notice,” says Panjiar.

 

Penalties for under- and misreporting

 

• Misreporting of foreign income can attract a penalty of up to 200 per cent of tax payable.
• In addition, under the Black Money Act, 30 per cent tax on undisclosed foreign assets, a penalty of up to three times the tax, and potential imprisonment can be imposed.
• If someone has availed of an ineligible exemption or deduction, the tax department adds it back to taxable income.
• Under-reporting attracts a 50 per cent penalty; misreporting, 200 per cent of the tax due.

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  The writer is a Delhi-based independent journalist.