Top 7 Reasons Why You Might Receive an Income Tax Notice

According to the EZTax.in team, here are the top 7 reasons why a taxpayer might receive an income tax notice from the department:

1. Mismatch Between Form 26AS and Income Tax Return: If the income declared in your tax return doesn’t match the details in Form 26AS, the Income Tax Department (ITD) may issue a notice for mathematical inaccuracies. In such cases, taxpayers are required to either submit a revised return or respond to the query raised by the ITD.
2. Error in TDS Amount: If the Tax Deducted at Source (TDS) claimed in your tax return does not align with the information in Form 26AS, the ITD may send a notice asking you to correct the TDS amount. To resolve this, you can prepare a defective return and upload the necessary file (JSON) to the ITD portal.
3. Discrepancies in Tax Returns: Forgetting to include certain income, such as interest or commission, or claiming deductions under incorrect sections can lead to a notice from the ITD. In such cases, taxpayers need to immediately correct the discrepancies by either revising the return or responding to the notice.
4. Random Scrutiny: The ITD randomly selects returns for scrutiny. If your return is selected, you will need to submit a covering letter explaining your case and upload the required documents within the specified timeframe. It’s advisable to seek expert advice when responding to such notices.
5. Reporting High-Value Transactions (SFT): Transactions involving high amounts, such as bank deposits exceeding Rs 2 lakh, investments in mutual funds above Rs 2 lakh, or the purchase and sale of property, need to be reported to the ITD. Failure to report these transactions can result in a notice.
6. Unpaid Self-Assessment Tax: If you fail to pay the self-assessment tax while filing your return, the ITD may issue a notice requesting the payment.
7. Defective Returns or Disallowances: In some cases, just filing a return isn’t enough. Certain forms need to accompany your tax return. For instance:
   • Foreign Income: Form 67 must be submitted with the return.
   • Arrears: Form 10E should be submitted.
   • If your net profit from business or profession exceeds Rs 1.2 lakh, a profit and loss statement and balance sheet must be submitted; otherwise, your return may be deemed defective.

How to Avoid Income Tax Notices

Avoiding income tax notices may seem challenging, but following some basic guidelines can help. Here are some steps you can take to minimize the chances of receiving a notice:

1. Understand the types of income you receive and how they are taxed. Refer to resources like the Income Tax Help Center for guidance.
2. Know the kinds of financial transactions you typically carry out each month and their tax implications.
3. Always file your tax return, even if your income is below Rs 2.5 lakh per year, if you:
   • Receive foreign income
   • Have become an NRI
   • Own a business
   • Work as a contractor or freelancer
   • Are a managing partner or director of a company
   • Trade in stock markets or cryptocurrencies
   • Receive pass-through income from family or friends
4. Make sure to understand when to deduct TDS when making payments to others and the applicable rates.
5. Be mindful of the deductions you claim or plan to claim in your return.
6. Report the sale of capital assets like a house, land, or machinery—even if the sale resulted in a loss.
7. Ensure you e-verify your return after filing it, either by yourself or through a tax consultant.

What Are the Next Steps After Receiving a Notice?

Taxpayers often miss income tax notices due to the volume of emails received daily. EZTax.in recommends that you regularly check the Income Tax Department’s (ITD) portal for any notices. Alternatively, you can consult EZTax.in for assistance with handling these notices.

If you prefer to check for notices on your own, you can refer to resources such as “How to See Your IT Notices?” or other helpful documents available at EZTax.in. You can also explore guides on “How to Handle Your IT Notices?” for more detailed instructions on managing tax-related queries.

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