What Happens If There Are Discrepancies in Your ITR?

If any mismatch or irregularity is detected in your Income Tax Return, the Income Tax Department may issue notices under relevant sections of the Income Tax Act. These notices can be sent via registered email or post, and prompt action is necessary to avoid penalties or further scrutiny.

Such notices may relate to scrutiny assessments, non-filing of returns, late submission, defective ITRs, mismatch in tax credit statements, undisclosed income, or unpaid self-assessment tax.

Steps to View and Respond to an Income Tax Notice on the Portal

To respond to an income tax notice, follow these simple steps:

Step 1: Visit the official Income Tax e-Filing Portal

Step 2: Log in using your PAN and continue to your dashboard

Step 3: Navigate to the ‘e-File’ menu to check for any notices or communications

Step 4: Click on “Provide Response” to view the notice in detail and submit your reply

Step 5: While responding, choose one of the following:

Demand is correct

Disagree with demand

Partially correct

Not correct but agree for adjustment

Step 6: Submit your response and check back regularly to monitor for any follow-up notices that may require further clarification.

How to Handle an Income Tax Notice Related to Credit Card Usage

Common Situations That May Trigger an Income Tax Notice:
You may receive an income tax notice under the following circumstances:

• If your credit card was used to purchase goods or services exceeding ₹10 lakh

• If you have paid a credit card bill exceeding ₹1 lakh

How the Income Tax Department Monitors High-Value Credit Card Transactions:
Here’s how the department keeps tabs on large-scale transactions:

• Banks, post offices, and financial institutions are required to report such transactions to the Income Tax Department

• These details are submitted through Form 61A, also known as the Statement of Financial Transactions (SFT)

• The Investigation Wing of the department analyzes the submitted data

• From June 1, 2020, Form 26AS was updated to include credit card and other high-value transaction data

• High-value transactions can be reviewed in Part E of Form 26AS

Tips to Avoid Receiving an Income Tax Notice:
To stay on the safe side and avoid unnecessary tax scrutiny:

• Limit excessive credit card spending

• File your income tax return (ITR) accurately and on time

• Ensure total credit card transactions remain under ₹2 lakh in a financial year

• Match the income declared in your ITR with your Form 26AS

• Always disclose high-value transactions in your ITR, if applicable

Common Types of Income Tax Notices and How to Respond

Income Tax notices can vary in purpose and nature. Each type requires a tailored response. Let’s explore one major type—Notice for Non-Filing of ITR—and understand how to deal with it effectively.

Notice for Not Filing Income Tax Return

If you filed your ITR one year and skipped the next, or if you’ve conducted high-value transactions without filing a return, the Income Tax Department may send you a notice for non-filing. Even salaried individuals whose employers deduct TDS may receive such notices if no return is filed.

If you’ve received such a notice by post, it’s essential to respond to the issuing authority, clearly explaining the reason behind not filing your return.

For instance, if your income was below the taxable threshold, mention that in your reply. However, it’s generally advisable to file an ITR—even when not mandatory—especially if you’ve filed in previous years.

The department monitors high-value financial activities via the Annual Information Return (AIR). Some examples that might trigger a notice include:

• Depositing ₹10 lakh or more in savings accounts

• Paying ₹1 lakh or more in cash or ₹10 lakh+ through other modes towards credit card bills

• Purchasing mutual funds worth ₹10 lakh or more

• Buying or selling property valued at ₹30 lakh or more

Even if these were non-taxable transactions or resulted in losses, ITR filing is still expected. In your response, clarify your reasons for not filing. If your assumption was incorrect and the deadline is still open, you can file the ITR now and attach the ITR-V/acknowledgement with your reply.

If the due date has passed, you should include a full computation of your income and investments to show whether tax was due. If tax remains unpaid, penalties may apply.

Remember, just because TDS is deducted from your salary doesn’t exempt you from ITR filing. TDS is applicable when your total income crosses the tax-exempt limit—so, return filing remains mandatory.

How to Respond Online to a Non-Filing Notice

If you’ve received the notice via email, you can respond through the Income Tax e-Filing portal:

1. Log in to your account using your PAN.

2. Navigate to the Compliance section.

3. Find the specific notice and click to view details.

4. Choose one of the following applicable responses:

   • Return has been filed

   • Return is under preparation

   • Business has ceased

   • No taxable income

   • Other

Once you select the appropriate reason, move to the ‘Related Information Summary’ section and fill in the required details.

Notice for Late Filing of ITR

If you miss the July 31 deadline for filing your Income Tax Return, the Income Tax Department may issue a notice for non-filing. Such notices are typically sent within a year after the close of the relevant assessment year. It’s best to file your return without delay and attach the ITR-V, or respond by selecting the option ‘Return under preparation’.

Notice for Income Not Disclosed

If any source of income is omitted in your return—such as bank interest or capital gains from securities—the department may flag it. This is especially likely if tax has been deducted (TDS) but no corresponding income is reported, as the authorities monitor transactions reported under the Annual Information Return (AIR).

Tip: Always compare your ITR with Form 26AS before submission. If you’ve missed reporting any income, file a revised return. If the deadline has passed, send a calculation sheet of income and tax dues. If tax is owed, pay it along with applicable interest and penalties, and include the payment challan in your reply.

Notice for Mismatch in Tax Credits

You may receive a notice if there’s a difference between the tax credit details reported in your ITR and what’s reflected in Form 26AS. Carefully review the TDS entries and ensure both documents align. If the mistake is in the ITR, file a revised return. If the mismatch is due to an error in Form 26AS, work on getting it corrected first.

Notice for Not Paying Self-Assessment Tax

Filing your return without paying the self-assessment tax due leads to a defective return. In such cases, you should promptly clear the outstanding tax and submit a revised return to rectify the error.

Notice for Suspected Tax Evasion

If you invest in the name of your spouse but fail to declare the income generated from such investments, the department may see this as an attempt to understate income. This could trigger a scrutiny notice under Section 143(2) of the Income Tax Act for possible tax evasion.

Notice for Adjusting Refunds Against Dues

As per Section 245, the Income Tax Department can adjust any refund due to you against pending tax liabilities. If such an adjustment is initiated, the department will issue a formal notice to inform you of the action being taken.

Notice of Demand (Section 156)

When an order is passed requiring you to pay tax, interest, or penalties, a demand notice is issued under Section 156. The taxpayer is expected to clear the specified dues within the time limit mentioned in the notice.

Notice Under Section 142(1)

This notice is issued at the preliminary stage, before any detailed assessment. The Income Tax Department seeks details about your income, taxes paid, investments, assets, and liabilities. You may also be asked to furnish information about individuals for whom you’re legally responsible, such as a deceased person’s income if you are their legal heir.

If the Assessing Officer is satisfied with your submissions, your case may not proceed to scrutiny. However, even if you feel the information asked is not applicable to you, it is mandatory to respond to this notice under Section 142(1) to avoid penalties or further action.

Notice Under Section 143(2)

This is a scrutiny notice that typically follows a Section 142(1) notice. It may be issued up to six months after the end of the relevant assessment year. Receiving this notice means your return has been selected for detailed review. You must provide records related to your income, deductions, exemptions claimed, capital gains, and any other financial details.

A prompt and accurate response is essential. It’s advisable to consult a tax expert before submitting your reply to ensure compliance and avoid possible legal implications.

Notice Under Section 245

If you’ve claimed a tax refund but there are previous outstanding dues against your PAN, the Income Tax Department may issue a notice under Section 245. This informs you about the proposed adjustment between your refund and the pending dues.

You must respond to this notice, especially if you dispute the past demands. If corrections are needed, submit a revised or rectified return and explain the actions taken to resolve earlier errors, along with supporting justification.

Notice Under Section 139(9)

A notice under Section 139(9) is issued if your return is found to be defective—for instance, if mandatory documents were omitted or incorrect details were submitted. You have 15 days to respond, or the return may be treated as invalid.

To correct this, you must file a revised return or a rectification within the specified period. If done on time, the return will be considered valid. However, if the deadline has passed, it may be treated as not filed at all for that year.

Important Reminder

Receiving a notice from the Income Tax Department can feel stressful—but don’t panic. If you’re unsure how to proceed, consult a qualified tax professional. Always respond honestly and include all relevant supporting documents. If any return correction is needed, handle it promptly. Filing your returns online also makes it much easier to manage and reply to such notices efficiently. Consult us for the best itr filing services!