Even small errors in your income tax return can result in getting a notice

Reconcile tax records, verify the communication from the tax department is genuine, and respond within the deadline to avoid penalties and litigation

The July 31 income tax return (ITR) filing deadline is almost upon us. Taxpayers who rush to file without checking details could face costly consequences. Even small errors such as mismatched income, incorrect tax credit claims, undisclosed bank interest, or the use of the wrong ITR form can trigger notices from the Income Tax Department. The department now relies heavily on data analytics and information from the Annual Information Statement (AIS), Form 26AS and banks, so taxpayers must file accurate and complete returns.

 

Taxpayers should understand the notices they may receive, the errors that trigger them, and the steps they need to take when such a communication lands in their inbox.

Notices taxpayers may receive

The department issues several communications after taxpayers file an ITR. Most are routine and system-generated. An intimation under Section 143(1), for example, may confirm the return, issue a refund or raise a tax demand. Taxpayers may also receive notices about defective returns (Section 139(9)), scrutiny assessments (Section 143(2)), requests for additional information (Section 142(1)), tax demands (Section 156), refund-related issues or mismatches between the ITR and data in Form 26AS, AIS, the Taxpayer Information Summary (TIS), the Statement of Financial Transactions (SFT) or tax deducted at source (TDS) statements.

 

“In some cases, the department may also issue reassessment, penalty or foreign asset-related notices if it believes income has escaped assessment or mandatory disclosures have been omitted. Taxpayers should not panic on receiving a notice, as many are triggered by data mismatches identified through technology-driven compliance systems rather than suspected tax evasion. Every communication, however, should be reviewed carefully and responded to within the prescribed timeline,” says Akhil Chandna, partner and global people solutions leader, Grant Thornton Bharat.

Understand what each notice means

Although taxpayers commonly call these communications “tax notices”, each serves a different purpose. The department sends an automated intimation under Section 143(1) after it processes a return; the intimation may confirm the return, issue a refund or raise a tax demand. The department issues a Section 139(9) notice when a return is defective, such as when the taxpayer uses the wrong ITR form or omits mandatory details. The notice gives the taxpayer an opportunity to correct the error.

 

“A Section 143(2) notice means the return has been selected for scrutiny, requiring the taxpayer to substantiate the income, deductions and exemptions claimed. A Section 142(1) notice seeks additional information or documents needed to complete the assessment. In essence, Sections 143(1) and 139(9) relate to return processing, while Sections 143(2) and 142(1) involve a more detailed examination of the taxpayer’s return,” says Chandna.

Errors that trigger notices

The department uses technology and data shared by banks, employers, brokers and other reporting entities to verify returns. Notices often arise when the income reported in the ITR does not match information in AIS, TIS, Form 26AS and other databases. “Common triggers include unreported income, incorrect TDS or tax credit claims, errors in reporting capital gains, wrong residential status, incorrect deduction claims, non-disclosure of foreign assets or income, filing the wrong ITR form, and mismatches involving high-value transactions such as property purchases, investments and foreign remittances,” says Chandna.

 

Taxpayers should not rely only on Form 16. Before filing, they should reconcile the ITR with AIS, TIS, Form 26AS, bank statements, capital gains statements and other relevant records. A properly reconciled return reduces the risk of unnecessary notices.

Transactions that may attract scrutiny

The department uses data analytics and information from AIS, SFT, TDS statements and other reporting mechanisms to track transactions. “Transactions that commonly attract attention include property purchases and sales, large securities transactions, foreign assets and income, overseas bank accounts, large cash deposits, high-value spending such as luxury purchases or foreign travel, and unexplained gifts, loans or other financial transactions,” says Preeti Sharma, partner, global employer services, tax and regulatory advisory, BDO India.

 

Such transactions do not automatically indicate tax evasion. The department may simply seek to verify whether taxpayers have disclosed them correctly and paid the applicable tax.

When reassessment can begin

The Assessing Officer (AO) may begin reassessment proceedings when information from data analytics, audit findings or other authorities suggests that income has escaped assessment. Except in certain cases, such as search proceedings, the AO first gives the taxpayer a notice and an opportunity to explain why reassessment should not begin.

 

“After considering the taxpayer’s response and supporting documents, the AO decides whether to issue a formal notice under Section 148. This pre-notice hearing acts as an important safeguard, ensuring taxpayers get a fair opportunity to present their case before reassessment proceedings begin,” says Sharma.

Demand, adjustment and rectification notices

Each notice serves a different purpose. The department sends a demand notice when it determines that the taxpayer must pay additional tax, interest or penalty after it processes or assesses the return. Before the department adjusts a refund against an outstanding tax demand, it issues a Section 245 notice and gives the taxpayer an opportunity to respond or object.

 

“A Section 154 notice is issued to rectify an apparent error, such as an arithmetical mistake or an incorrect tax credit. Taxpayers should not ignore any of these notices. Verifying the facts and responding promptly can help resolve issues early and avoid unnecessary litigation,” says Sharma.

How to identify a fake notice

Taxpayers should verify every communication that claims to come from the department before they act on it. Genuine emails usually come from the @incometax.gov.in domain, while legitimate short message service (SMS) communications typically carry the ITDCPC sender ID. Taxpayers should beware of emails, SMSes, WhatsApp messages or phone calls that seek payments, know your customer (KYC) updates, one-time passwords (OTPs), passwords or bank details, as these requests often signal fraud.

 

“The safest way to verify a notice is to log in to the Income Tax e-Filing portal and check whether it appears under ‘Pending Actions’, ‘e-Proceedings’ or ‘View Notices and Orders’. Every genuine notice also carries a Document Identification Number (DIN), which can be verified on the portal,” says Shubham Jain, director, SVAS Business Advisors LLP.

How to respond to a notice

Taxpayers should first read the notice carefully and identify the issue, the relevant section and the response deadline. Before replying through the Income Tax e-Filing portal, they should reconcile the details with their ITR, Form 26AS and AIS.

 

“Taxpayers should also note that under the NUDGE initiative, the I-T Department may send preliminary SMSes or emails highlighting possible discrepancies and encouraging voluntary corrections before formal proceedings are initiated,” says Neeraj Agarwala, senior partner, Nangia & Co LLP.

Keep supporting documents ready

The issue raised in the notice will determine which documents a taxpayer needs, but taxpayers should keep all records used to file their ITR readily available. “These may include Form 16, bank statements, bank interest certificates, investment proofs, capital gains statements and tax payment challans. Having the relevant documents on hand will help taxpayers respond accurately and resolve the issue more quickly,” says Agarwala.

When to revise or update the return

The appropriate remedy depends on the issue. Taxpayers can file a rectification request if an intimation, demand notice or other order contains an apparent error. If the ITR itself contains an error, they should file a revised return within the prescribed time or, where the law permits, an updated return.

 

“If taxpayers disagree with a notice or tax demand, they should respond through the Income Tax e-Filing portal with supporting documents within the stipulated deadline. They shouldn’t ignore any communication, as timely action can help avoid interest, penalties and unnecessary litigation,” says Jain.

 

(The writer is a Delhi-based independent journalist)

 

Why timely response to notices is crucial

• Respond to every tax notice within the prescribed deadline
• Avoid ex parte assessments based only on available records
• Prevent additional tax demands and denial of deductions or tax credits
• Reduce the risk of interest, penalties and possible prosecution
• Act promptly to avoid prolonged proceedings, costs and stress