Income Tax Notice: How to respond if you receive an income tax notice, taxpayers should know important things..

Income Tax Notice: There has been a steep rise in income tax notices issued to taxpayers in India in recent months. These notices, which are sent for various reasons ranging from faulty returns to demands for additional taxes, are causing anxiety and confusion among individual taxpayers. The main reason for this increase is the Income Tax Department's increasing focus on compliance and its efforts to identify discrepancies in financial reporting. There can be many reasons for this.

Filing the wrong income tax return-

The most common reason for receiving an income tax notice is selecting the wrong tax return form. The four forms for individuals are ITR 1, ITR 2, ITR 3 and ITR 4. Many taxpayers receiving income for the first time from capital gains or futures and options (F&O) trading mistakenly use ITR 1 or ITR 4 instead of ITR 2 or ITR 3. This leads to non-disclosure of such income, resulting in receiving defective return notices.

Mismatch with Form 26AS-

Many taxpayers who filed income tax returns based on Form 26AS in June 2024 are now receiving notices. This happened because Form 26AS did not include the income of the January-March 2024 quarter, leading to under-reporting of their actual income. They are now receiving demand notices from the Income Tax Department.

Non-taxable gifts-

Gifts received from specified relatives are exempt from income tax, and there is currently no provision to declare these non-taxable gifts in income tax forms. Nevertheless, some individuals have received demand notices for non-payment of tax on such gifts, highlighting a gap in the reporting process.

Revised returns processed-
Some taxpayers who filed revised returns after identifying errors in their original filings have received notices based on their original returns. These notices are often generated because the revised return has not yet been processed or because the automated query requires further verification by the taxpayer.

Verify the notice-

Verify the authenticity of the notice under the ‘Pending Actions’ tab on the Income Tax Department’s e-filing portal. This is particularly important because of widespread phishing scams, especially related to tax refunds.

Understand the type of notice-

Notices are issued under various sections of the Income Tax Act, and each requires a specific response. For example, section 139(9) deals with defective returns, while section 143(1) deals with processing errors. Identifying the type of notice helps determine the action required.

File a timely response-

Each notice comes with a specific response deadline. For example, defective return notices usually provide 15 days to make corrections, while demand notices usually provide 30 days to respond. It is important to meet these deadlines to avoid penalties, interest charges, or legal action. Responding within the stipulated time shows compliance and a willingness to cooperate with tax authorities.

Correct errors by filing a revised return-

If errors or omissions are highlighted in a notice, correct them by filing a revised return or providing the required information. For example, a notice issued under section 139(9) for a defective return can be addressed by correcting the errors and re-filing within the prescribed 15-day period.

Pay additional tax if required-

If you receive a notice demanding additional tax for under-reported income or discrepancies, immediately calculate and pay the correct amount, including applicable interest. There is no need to file a revised return in such cases. Instead, you can respond to the outstanding demand directly through the 'Pending Actions' tab on the dashboard of the e-filing portal. The process is quick and straightforward, allowing you to meet your tax liabilities with ease.

Disclaimer: This content has been sourced and edited from Hr Breaking. While we have made modifications for clarity and presentation, the original content belongs to its respective authors and website. We do not claim ownership of the content.