As the deadline to file Income Tax Returns (ITR) for FY 2024-25 (AY 2025-26) approaches on September 15, taxpayers must be cautious not only while filing returns, but also after submission. A growing number of individuals are being selected for scrutiny.
The Income Tax Department has already picked nearly 1.65 lakh cases for detailed assessment under Section 143(2) — significantly higher than usual.
Filing an ITR doesn’t guarantee closure. Notices may still arrive if the tax department detects inconsistencies, high-risk transactions, or underreporting of income.
Here are key reasons why you may receive a tax notice:
Mismatch between TDS and reported income
If the TDS details on Form 26AS or AIS (Annual Information Statement) don’t match with the income declared in your ITR, the department may flag the return for scrutiny. This is a common trigger for salaried taxpayers and freelancers.
Failure to report all sources of income
Omitting interest income from savings accounts or fixed deposits, rental income, or capital gains (including crypto and overseas investments) can lead to a notice. Even non-taxable income must be reported.
Claiming false deductions
Exaggerated claims under Section 80C, 80D, or Section 10 exemptions (such as HRA) without documentary proof can be penalised. According to an tax expert said, underreporting attracts a 50% penalty, while misreporting (fraudulent rent receipts, fabricated crypto gains, etc.) invites a 200% penalty under Section 270A.
Sudden fall in income
A steep decline in income compared to previous years, especially for salaried individuals, may prompt questioning unless properly explained with valid documentation such as revised pay slips or job loss details.
High-value transactions not reported
You may receive a notice if the tax department detects high-value financial activities not reflected in your return. These include:
- Cash deposits of ₹10 lakh or more in a year
- Credit card bill payments exceeding ₹2 lakh
- Mutual fund purchases of ₹2 lakh or more
- Purchase of bonds or debentures worth ₹5 lakh
- Equity investments above ₹1 lakh
- Property transactions exceeding ₹30 lakh
- Investments in RBI bonds over ₹5 lakh
Job change without proper tax disclosure
If you switch jobs within a year but claim tax deductions from both employers without consolidating Form 16s or disclosing income properly, a discrepancy may arise.
Incorrect ITR form selection
Filing your return using the wrong ITR form can lead to partial income disclosure. Platforms like ClearTax caution that this alone can result in penalties similar to underreporting or misreporting.
Fake or omitted entries
Under Section 271AAD, the Income Tax Department can levy penalties for any false or omitted entry detected during assessment. This includes forged documents, undisclosed accounts, or manipulated financial data.
What to do if you receive a notice?
- Verify PAN and DIN: Make sure the notice is addressed to you and contains a valid Document Identification Number.
- Understand the reason: Determine the section under which the notice is issued (e.g., 139(9) for defective returns, 143(2) for scrutiny).
- Collect supporting documents: Maintain proofs for all income, deductions, and transactions.
- Consult a tax professional: Legal and expert help can speed up the response process and reduce penalties.
- Respond within deadline: All notices come with a response window. Delays can attract further action.
