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What is Income Tax Notice?

Income Tax Notice

What is Income Tax Notice?

An Income Tax (IT) Notice is a communication sent by the Income Tax Department when they have questions or need more information about a previously filed Income Tax Return(ITR). These notices may ask the taxpayer for additional information or documents or indicate that the taxpayer owes additional taxes. Taxpayers should respond to notices promptly and accurately to avoid penalties or other taxes.

Reasons one can receive an Income Tax Notice

There are several reasons why an individual or a business might receive an IT Notice from the tax authorities. Some of the common reasons are as follows:

Inaccurate information about Assets/Income in the ITR

Individuals may receive a notice requiring them to disclose their income and asset information inside and outside of India. Filling accurate information is necessary when filling out ITR.

Variation in Actual and Declared Income Disclosure

The taxpayer must collect all financial documents and proof of all income sources, such as paycheck stubs, bank statements, invoices, etc. If the authorities suspect that an individual has not reported all of their income from all sources, they will issue a non-reportage notice.

Unexpected changes in Investment amounts/Transactions/Income

The tax department will be alert for any sudden significant decrease in income or sharp increase in income levels. The IT division may become involved and send a tax notice. If one makes excessive investments in their spouse’s or child’s name, their income will be considered when calculating their total taxable income.

Unexpected TDS inconsistencies when the TDS claim is incorrect

TDS should correspond to the TDS listed on Forms 26AS and 16 or 16A as of the date the ITR is filed. A notice under Section 143 (1) will be issued if a discrepancy is discovered. TDS can be deposited by the employer, the bank that holds one’s fixed deposits, or a bond issuer from whom one has purchased bonds. If there are any errors in the TDS deducted and the income and interest earned, the IT department will most likely send a notice.

Review and Evaluation

A notice may be served under Section 143 (2) if the tax authorities scrutinize the filed ITR. Disagreements over incorrect reporting, for example, can lead to scrutiny.

Delayed Income Tax Return Filing

If taxpayers still need to file their ITR, they are notified of the upcoming deadline. The IT Act, Section 142(1)(i), requires you to file the return, or a notice will be issued. After uploading the returns, you have 120 days to submit the ITR. You may receive a notice from the Income Tax Division in such cases.

Payment of refunds for any outstanding debts and taxes

One may have unintentionally failed to include some interest income. As interest is credited to the taxpayer’s bank account or reinvested in their assets, the department can quickly identify them as the source of the overstatement. A notice of failure to pay taxes may be issued to the individual.

Prior Tax Evasion 

The Income Tax Act allows the Internal Revenue Service to re-evaluate previously filed tax returns. Section 147 of the IT Act allows the department to issue a notice to the taxpayer. Only when the tax officer suspects that income subject to tax has escaped assessment is a notice of reassessment issued.