When Income Tax Send Notice: The Top 8 Reasons And How to Deal With It

When You Get An Income Tax Notice: 8 Reasons And How To Deal With It

After you receive an income tax notice, you might panic over and want to know why you received the notice to begin with. While we may agree that it may sound alarming at first, we assure you that there is no need to panic over it. 

As tax experts who are the top tax consultant in Gurgaon with detailed knowledge of complex processes like cross border transactions and GST registration in Gurgaon, we are here to guide you about the different reasons behind by income tax authorities may issue a notice and how to deal with income tax notice. 

If you have a taxable income, then the process of tax payments and ITR filings must be known to you. If you are not properly aware of the rules and regulations in place in relation to taxation laws, then the likelihood of receiving an ITR notice will increase. 

Continue reading this blog to learn about why the income tax department sends notices to an individual and how to deal with it.

Recommended: A Detailed Guide On How To Be Ready For Income Tax Assessment In India

What is an Income Tax Notice?

An income tax notice intimation or written communication sent by the Income Tax Department to a taxpayer addressing matters concerning their income tax filing. The reason behind a notice can be as simple as a request for additional information. A notice can be issued due to critical reasons like demand for tax dues or if any discrepancies are found within the income tax filings. The different sections of the income tax mention why you may get a notice and for what reasons. 

The most important step after receiving a notice from the Income Tax Department is to authenticate the notice. As they say, it is better to be safe than sorry, so checking whether the notice is authentic or not is crucial before taking any other steps. Remember to take note of the unique Document Identification Number (DIN) when you are about to authenticate your income tax notice on their official portal. After confirming its authenticity, it is important to send a reply back to the communication issued by the income tax department within the time frame mentioned in the notice.

Read Also: Is PPF Interest Taxable? A Guide to Income Tax on PPF In India

8 Reasons Behind Why The Income Tax Department Sent A Notice

Before you respond to the notice, take note of the different reasons why the income tax department sends an income tax notice.

1. Amount Stated in TDS Has Inconsistencies

This is the most common cause behind why a person may receive a notice. This notice will be issued under Section 143(1) due to the present inconsistencies. In the notice, the Income Tax Department might ask you to input the right amount or explain the difference. 

2. Failing To File ITR

If the tax has not been paid before the deadline of July 31st, then you may be sent a notice under Section 142(1)(i) of the Income Tax Act. You will receive this notice if you fail to file your returns, and will be asked to submit your return as soon as possible in this notice.

3. Discrepancy in ITR

When the amount mentioned in the tax return filing has discrepancies such as failure in declaration of some incomes or incomplete information, then you will receive a notice from the Income Tax department. Always manage your bank statements and bills carefully. 

4. Review of Documentation

If the Income Tax Department decides to review your documentation based on the returns that were filed, then you will be asked to show your documentation within the income tax notice. If you are asked for a review of documentation, then make sure to show the documentation in the reply to the notice as soon as possible.

5. Investment in Spouse’s Name

When individuals purchase a large investment for their family or spouse, they will be sent a notice if it is not mentioned in the return filings. The investment may be a building, land or even fixed deposits. For example, if you buy a house in the name of your spouse, then you will be required to mention it in your income tax return filings. If not mentioned, then the Income Tax Department will send a notice to you demanding for the returns to be filed.

6. High-Value Transactions Left Unreported

If any high-value transactions are not mentioned within the tax return filings, then you will receive an income tax report.  This may include:

• If you deposit cash worth more than Rs. 1 Crore in a bank within a year.
• If the credit card purchase is more than Rs. 2 Lakhs.
• If the mutual fund investment is more than R.s 2 Lakhs
• If the purchase of bonds and debentures is more than Rs. 5 Lakhs in a year.
• If the purchase of the property is worth more than Rs. 30 Lakh or more in the year.

7.  Misreporting Income or Expenses

If the expenses reported do not match the documentation provided in the ITR, then you will receive a notice from the Income Tax Department. Misreporting income, expenses or deductions is considered a violation of tax laws, so be careful and maintain accurate records while filing your income tax returns.

8. Scrutiny by Income Tax Officer

An Income Tax Officer may choose to randomly select a taxpayer for scrutiny under Section 143(3) of the Income Tax Act. Usually, this means that you have to respond to the Assessing Officer within 6 months. Submit the requested documents and you will have nothing to worry about post-submission.

Read More: How Indian Businesses Can Maximize Corporate Tax Deductions Legally

What To Do After Receiving An Income Tax Notice?

After you receive a notice, the first thing to do is to read the notice carefully. Find out why the income tax department sent you a notice, and what the notice is saying. Most importantly, check the basic details to ensure that the notice was sent to you specifically. After verifying that it was sent to you, check for the discrepancies in tax returns and reply to the notice as soon as possible.  

Conclusion

While a notice issued by the Income Tax Department might create a sense of panic, there is no need to worry. As long as you understand the reasons behind the notice, you should be okay. Respond to the income tax notice as soon as you can to avoid any penalties or legal issues.