Even if you have paid your taxes in full and filed your returns on time, you may still receive an Income Tax Notice. There is no need to panic—understanding the possible reasons can help you respond effectively. Below are the most common triggers for receiving an IT notice:

1. Incorrect Reporting of Income or Assets

The Income Tax Department has intensified measures to curb undisclosed income and assets. A notice may be issued if there are errors or omissions in reporting your income or assets, whether held in India or abroad. Additionally, inaccuracies in personal details such as name, address, or PAN in your tax return may raise red flags and prompt a notice.

2. Mismatch Between Declared and Actual Income

If the tax authorities identify discrepancies between the income reported in your return and income reflected from other sources, such as Form 26AS or bank records, you may receive a notice for underreporting income. Reviewing all financial documents—salary slips, bank statements, interest certificates, and invoices—before filing your return can help avoid such issues.

3. High-Value Transactions or Sudden Changes in Income or Investments

Significant fluctuations in income, large investments, or high-value financial transactions can attract scrutiny. Purchases of expensive assets, substantial bank transactions, or investments made in the names of your spouse or children (which may be clubbed with your income) must be properly disclosed. Failure to report such transactions may result in an income tax notice.

4. Incorrect TDS Claims

The Tax Deducted at Source (TDS) claimed in your Income Tax Return must match the TDS details reflected in Form 26AS and Forms 16 or 16A. Any mismatch can result in a notice under Section 143(1) of the Income Tax Act. Errors may arise if the deductor—such as your employer, bank, or bond issuer—has reported different figures than those claimed in your return.

5. Scrutiny and Detailed Assessment

A notice issued under Section 143(2) indicates that your return has been selected for detailed scrutiny. This typically occurs when inconsistencies or inaccuracies are detected in the filed return. If discrepancies are confirmed, penalties may be imposed. Promptly responding with accurate explanations and supporting documents is essential.

6. Late Filing or Non-Filing of Income Tax Returns

Filing your income tax return within the prescribed deadline is mandatory. If you fail to file on time, the department may issue a notice under Section 142(1)(i) requiring you to submit your return. Paying taxes alone does not fulfill compliance obligations—filing the return is equally important, even in cases of business losses. Additionally, failure to verify your return within 120 days of online filing may also trigger a notice.

7. Adjustment of Refunds Against Outstanding Dues

If you fail to declare interest income or other taxable earnings, the department may detect this through bank or financial institution records. In cases where you are eligible for a refund but also have pending tax liabilities, the assessing officer may issue a notice stating that your refund will be adjusted against the outstanding dues.

8. Reassessment Due to Past Tax Evasion

Under Section 147 of the Income Tax Act, the department has the authority to reassess past returns if there is reason to believe that taxable income was previously unassessed. Such reassessment notices are issued based on specific criteria and credible information suggesting tax evasion.

9. Errors in Reporting Long-Term Capital Gains (LTCG)

Accurate reporting of long-term capital gains from listed equity shares and equity-oriented mutual funds is crucial. LTCG exceeding ₹1 lakh in a financial year is taxable at 10%, provided Securities Transaction Tax (STT) has been paid. Since reporting requirements became more detailed from FY 2018-19 onward, even minor errors can lead to tax demand notices. To avoid issues:

• Obtain capital gains statements from brokers or mutual fund houses

• Enter correct transaction details in your tax return

• Cross-verify calculations with account statements

• Seek professional assistance for complex computations