Income Tax Notice – How To Check And Time Limit of Notice and Reply

The Income Tax Department sends notices for various reasons, such as not filing the income tax returns, any defect while filing the returns, or other instances where the tax department requires additional documents or information. Nothing is frightening or alarming about the notice that is received.

DisyTax offers a comprehensive suite of services to help families and businesses maintain compliance. If an income tax notice is received, contact the Tax Expert at DisyTax to understand the income tax notice and determine a course of correct action.

Reason for Income Tax Notice

There may be several reasons why you might receive an income tax notice, including:

Discrepancies in Tax Returns:

If there’s a mismatch between the income declared, deductions claimed, and the data available with the Income Tax Department, you might receive an ITR notice asking for clarification.

Non-Filing of Tax Returns:

If you haven’t filed your income tax return by the due date, the department may send an ITR notice reminding you to file your return.

High-Value Transactions:

If you’ve made high-value transactions that don’t match your reported income, the department might send a notice to explain these transactions

TDS/TCS Mismatch:

You might receive a notice if there’s a discrepancy between the tax deducted at source (TDS) or tax collected at source (TCS) as per your Form 26AS and the income declared in your tax return.

Investments/Deposits in Your Name:

If you’ve made significant investments or have large deposits in your name that aren’t in line with your reported income, the department may inquire about the source of funds.

Property Transactions:

Transactions involving property, especially if the value declared is lower than the guideline value determined by the state, can trigger a notice.

Scrutiny of Returns:

The department randomly selects returns for scrutiny to ensure compliance. You’ll receive an ITR notice for detailed documentation and explanations if your return is chosen.

Demand for Tax:

If the department calculates that you have unpaid taxes based on your return or any adjustments they’ve made, they’ll issue a notice demanding the due tax.

Refund Claims:

If you’ve claimed a refund in your tax return, you might receive a notice for verification before the refund is processed.

Foreign Assets or Income:

Having foreign assets or income might lead to a notice if the department needs more information or if there are discrepancies in the reported details.

Types of Income Tax Notice

Let us understand the various types of notices or intimations issued by the Income Tax Department.

Notice Under Section 142(1)

A notice under section 142(1) can be issued under two circumstances:

• If you have filed your return, but the assessing officer requires additional information and documents; or
• If you have not filed your return but the assessing officer wants you to file it.

The information is called for to enable the officer to make a fair assessment. Being non-responsive to this notice has consequences,

• A penalty of Rs 10,000 can be levied for each such failure
• Prosecution, which may extend up to 1 year
• Bothof the above.’

Intimation Under Section 143(1)

After having filed your returns, it is electronically processed by the Central Processing Centre (CPC). The income is computed after making the following adjustments to the total income in return :

• Any arithmetical error in the return
• An incorrect claim (provided the incorrect claim is apparent from the information filed)
• Disallowance of incorrectly claimed loss or expenditure
• Any incomewhich has not been included in the return

Upon successful processing of the return, an intimation under section 143(1) is issued by the CPC under any of the three instances:

• There is a tax liability to be paid
• A refund has been determined
• There is no refund or demand, but there is an increase or reduction in the amount of loss.

In case there is a tax demand, then the intimation must be issued within 9 Months from the end of the year in which the return has been filed. For example, if you have filed your returns for Assessment Year (AY) 2024-25 on 27 July 2024, then an intimation can be issued anytime on or before 31st Dec 2025. Processing of returns under this section has been made mandatory from AY 2017-18.

How To Analyse Income Tax Notice?

1. The notice provides a comparative analysis of the date provided in the ITR and Computed u/s 143(1).
2. Identify which line item is causing such additional liability
3. It can be a mismatch in Income, Deduction or Prepaid taxes
4. If such demand is due to an error, then Rectification return u/s 154 can be filed within a period 4 years from the end of such assessment year
5. If demand is accurate, then it can be paid off using the link provided

Notice Under Section 143(2)

The purpose of this notice is to notify the assessee that the return filed has been picked for scrutiny. It is pertinent to note that the section under which it will be scrutinized is different from the one in which the notice has been issued. Via detailed scrutiny, the assessing officer intends to be assured that you have not done any of the following:

• Understated your income
• Claimed excessive loss
• Paid lesser taxes

Through this notice, the taxpayer is required to respond to the questionnaire issued along with the documents required by the income tax department. The assessing officer is supposed to service this notice within 3 months after the completion of the assessment year to which it pertains.

How To Respond To Notice u/s 143(2)

1. Carefully go through the notice and identify the reason why such notice has been issued, which will be provided in the Annexure.
2. Prepare a response under a cover letter, providing a detailed explanation in a legitimate manner and answering truthfully to all the questions provided in detail.
3. Log in to your Income tax portal under e-proceeding, provide the response to such notice with the cover letter and also attach the necessary documents as requested.

Notice Under Section 148

An assessing officer may have a reason to believe that you have not disclosed your income correctly and, therefore, you have paid lower taxes. Alternatively, you may not have filed your return at all, even if you must have filed it as per law. This is termed an income-escaping assessment. Under these circumstances, the assessing officer is entitled to assess or reassess your income according to the case. Prior to making such an assessment or reassessment, the assessing officer should serve a notice to the assessee asking him to furnish his return of income. The notice issued for this purpose is issued under the provisions of Section 148.

Previously the timelines to be adhered to for the issuance of notice under Section 148 were as below:

As per the amendment in the Finance Act 2021, with effect from 1st April 2021, the time limit up to which the assessing officer can re-open the assessment of the taxpayer is as follows;

• Up to three years from the end of the relevant assessment year in normal cases and
• Beyond three years but not more than ten years from the end of the relevant assessment year, if the assessing officer has material evidence that income of Rs.50 lakh or more for a financial year has escaped assessment.

Time Limit To Issue Notice For ITR Filed Preceding To Finance Act 2021.

1. Up To 4 Years From The End Of The Relevant AY

Notice cannot be issued by any officer below the rank of Assistant Commissioner or Deputy Commissioner. An assessing officer can only issue a notice under Section 148 on the direction of the Joint Commissioner after recording the reasons for doing so. For AY 2017-18 notice under section 148 can be issued till 31st March 2022.

2. Beyond 4 Years But Up To Six Years From The End Of The Relevant AY

Notice can only be issued by the Chief Commissioner or Commissioner is satisfied that income has escaped assessment. The amount of income which has escaped assessment should be more than Rs. 1,00,000. For AY 2017-18 notice under section 148 can be issued till 31st March 2024.

3. Beyond 4 Years But Up To 16 Years From End Of Relevant AY

Notice under section 148 can be issued if income in relation to any asset (including financial interest in any entity) located outside India is chargeable to tax in India but has escaped assessment. For AY 2017-18, notice under section 148 can be issued until 31 March 2034.

*The Effect Of Amendment In Finance Act, 2021

As per the current provisions, the notice under section 148 can be issued for up to 4 years, up to 6 years or up to 16 years, as the case may be. But with effect from 1st April 2021, the new reassessment due datesshall be applicable.

Let us understand the timelines for previous financial years after the amendment in the Finance Act 2021 came in force:

*Hence the assessing officer cannot issue notice for the AY 2015-16 in normal cases. Also, for the financial year 2016-17, the notice shall be issued before 31st March 2021.

Notice Under Section 245

If the assessing officer has reason to believe that

• Tax has not been paid for the previous years and
• he wants to set off the current year’s refund against that demand,

 A notice under Section 245 can be issued. However, the adjustment of demand and refund could be done only if you have been provided proper notice and an opportunity to be heard. The timeline to respond to the notice is 30 days from the day of receipt of the notice. If you do not respond within the aforesaid timeline, the assessing officer can consider this as consent and proceed with the assessment. Therefore, it is advisable to respond to the notice at the earliest.

Notice u/s 139(1) – Defective Return

If the income tax return filed does not contain all necessary information or contains incorrect information, an ITR notice under Section 139 (1) will be issued.
If a tax notice under Section 139(1) is issued, you should rectify the defect in the return within 15 days.

Notice u/s 156 – Demand Notice

This type of income tax notice is issued by the Income Tax Department when the taxpayer owes any tax, interest, fine, or any other sum. All demand tax notices will stipulate the sum outstanding and due from the taxpayer.

What Should Be Done After Receiving An Income Tax Notice?

When you get a notice under any of the aforementioned sections, you should take the following steps:

1. Carefully read the notice to determine why it was sent.
2. Examine the notice’s basic details to determine that it is intended for you. To ensure that the notice is sent to you, it should include your correct name, PAN number, address, and so on. Check the assessment year given in the notice as well.
3. Determine the mismatch in your income tax return that resulted in a notice being served, if any.
4. To avoid penalties and prosecutions, respond to the notice within the time frame specified.
5. Ensure that your response is backed by adequate information.
6. Also, make sure to check that the notice you received is reflected in your income tax account online.

What Are The Most Common Causes Of Income Tax Notice?

The most common causes for which you might receive an income tax notice include the following:

1. Inconsistency in the amount of TDS reported
   2. An inaccuracy on your tax return
   3. Failure to submit all required papers
   4. Failure to file your tax returns
   5. When you make investments in your spouse’s name but fail to report them on your income tax returns.
   6. If high-value transactions occurred during the fiscal year but were not correctly disclosed on the income tax return
   7. If the assessing officer randomly examines your income tax return
   8. When long-term capital gains from stock investments are not properly disclosed
   9. If the taxpayer fails to declare any income
   10. If the incorrect income tax return form is used to file the income tax return

What Are the Methods for Serving Income Tax Notices?

The Income Tax Act of 1961 outlines the procedure for issuing notice, orders, or other communications, which can be delivered in several approved ways.

• Who Receives the Notice: IT Notices are typically sent directly to the individual concerned. If the notice involves a minor, it goes to their guardian. Mistakes in the recipient’s description can often be corrected unless the mistake affects the taxpayer’s identification.
• Postal Service: IT Notices can be sent via registered mail, ensuring the letter is properly addressed, prepaid, and posted.
• Posting on Property: If the recipient refuses to acknowledge receipt or cannot be found, the notice can be posted visibly at their residence or business location.
• Notices to Groups:
  • IT Notices can be sent to the manager of Hindu Undivided Families (HUFs) or, if the manager has passed away, to all adult members.
  • For partnership firms or associations, it notices can be sent to current or former partners or members.
• In the case of Closed Businesses:
  • The IT notice is sent to the individual whose income is being assessed.
  • For firms or associations, it goes to any member who was part of the entity when it ceased operations.
  • For companies, notices are sent to the principal officer or director.

Steps to Take After Receiving an Income tax notice

When you receive an income tax notice, handling it carefully and systematically is important. Here’s what you should do:

• Read the Notice Carefully:Understand why the notice was issued. It will detail the specific concern or requirement the Income Tax Department has.
• Verify Your Details:Ensure the notice is indeed for you by checking your name, PAN number, address, and the assessment year mentioned. This confirms the notice’s authenticity and relevance to your tax affairs.
• Identify the Issue:Determine what discrepancy or issue in your income tax return prompted the notice. It could be a mismatch in income, high-value transactions, or incomplete disclosures.
• File Reply on time:Acknowledge and respond to the notice within the given timeframe to avoid penalties or legal actions. The notice will specify the deadline for your response.
• Provide Complete Information:Support your response with all necessary documents and clarifications to fully address the department’s queries.
• Check Your Online Account:Confirm that the notice you received is also listed in your account on the Income Tax Department’s e-filing website. This ensures the notice’s legitimacy and helps keep track of your responses and any further communication.
• Seek Professional Help:If the notice involves complex tax issues or you’re uncertain how to proceed, consider consulting an DisyTax tax expert.

Documents required to reply to an Income Tax Notice

The documents are required to vary according to the type of income tax notice that is served to the taxpayer. The basic documents needed to reply to an income tax notice would be:

• The Income Tax Notice copy.
• Proof of Income source such as (Part B ) of Form 16, Salary receipts, etc.
• TDS certificates, Form 16 (Part A)
• Investment Proof if they are applicable.
• Bank Statement
• Books of Accounts
• Income Tax Computation
• 26AS, AIS
• Other required information as required.

It is always advisable to have tax experts review the notice. Therefore, after uploading the copy of the Income Tax notice, the experts will examine it and propose the most suitable solution. Based on their advice, you can request the necessary documents. To proceed, please send a copy of the Income Tax Notice and your questions to [email protected].

How Can DisyTax Assist with Your Income Tax Notice?

DisyTax can assist in responding to Income Tax notices through:

• Expert Consultation: Providing personalised guidance from experienced Tax Experts.
• Notice Analysis: Help understand the specifics and requirements of your Income Tax notice.
• Document Identification: Assist in identifying and compiling the necessary documentation for your response.
• Response Preparation: Crafting precise and timely responses to address the Income Tax Department’s concerns.
• Compliance Assurance: Ensuring your response complies with tax laws to minimise further queries or penalties.

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