Tag: Income Tax Notice FAQs

Income Tax Notice – important to verify notice/order issued by the income tax authority

Before you respond to any communication received in the name of the income tax department, it is important to verify whether the notice/order issued is genuine and issued by the income tax authority.

You can authenticate the notice/order/letter issued by the income tax authority on the e-filing portal. Let us understand to verify the same.

Step 1: Go to income tax e-filing portal. On the home page, go to ‘Authenticate notice/order issued by ITD’ under ‘Quick Links’.

Step 2: You can authenticate using:

  • PAN, document type, assessment year, issue date and mobile number (for notice/order/letter issued for AY 2011-12 and subsequent years only)
  • Document Identification Number and mobile number (for all assessment years)

Step 3: If you want to authenticate by PAN, document type, assessment year, issue date and mobile number, select the option and enter all the details.

Step 4: After filling in all the details, you will receive an OTP. Enter the OTP received.
Once the OTP is validated, the DIN of the notice issued, along with the date of issue of the notice, will be displayed.

If the notice is not issued by the ITD, it will display a message – No record found for the given criteria.

Step 5: Another alternative is to authenticate using DIN and mobile number.

Step 6: Enter DIN and mobile number and continue. You will receive an OTP. Validate using OTP.

If the notice/order is issued by the income tax authority, it will display a success message, as shown below.

Otherwise, it will show- No record found for the given Document Number

Types Of Notices/Intimations

Notice Under Section 133(6) 

The Income Tax Department has enacted the E-Verification Scheme 2021 which involves calling for information from those taxpayers where material difference is observed between the ITR field and data available in form AIS. The reason for such notice can be as follows

  1. ITR was not filed in spite of having income exceeding the basic exemption limit as per AIS.
  2. Taxable Income in the form of Salary, Interest Income, and Capital gain exists in the Annual Information Statement (AIS). However, values are not entered correctly in the ITR Form.
  3. Significant higher expenditure in the form of Purchase of immovable property, Foreign travel, and Purchase of Mutual funds/stocks in comparison to the Income declared in the ITR

Copy of Notice u/s 133(6)

Steps To Respond To Notice u/s 133(6)

  1. Analyse the reason for receiving such notice and identify if there was any actual misstatement from taxpayer side or error from department
  2. Login to the income tax portal >> Pending Action >> Compliance Portal >> E Verification

Provide detailed response along with necessary attachment in the questionnaire provided 

  1. If the misstatement is from the taxpayer and additional liability is required to be paid, then such taxpayer can file the Updated return u/s 139(8A) along with the necessary penalty voluntarily and provide a response accordingly
  2. However, if the error is from the department side you can provide the response in the insights portal along with supporting documents.

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
  • Both of the above.’

Copy of Section 142(1) Notice 

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 income which 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 nine 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 The Above 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:

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.

For instance, Rohit filed his return on 20th May 2024 for the AY 2024-25. Here notice under section 143(2) can be issued to Rohit within 3 months after completion of the AY to which it pertains, i.e. 31th July 2025.

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.

Are you not sure about what to do with such an income tax notice? Use our Notice Upload Facility to allow us to help you out. Alternatively, you can even seek the help of a Tax Expert.

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;

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.

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 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

Main Reasons for Receiving an Income Tax Notice

Top reasons for which you could receive an income tax notice: The Income Tax Department issues an income tax notice for a number of reasons under a number of provisions. Normally, a taxpayer receives an income tax notice as a result of missing or filing their income tax return late, filing it incorrectly, claiming an incorrect tax refund, and many other reasons. The income tax notice is issued by the tax department under sections 143(1), 142(1), 139(1), 143(2), u/s 156, Section 245 and Section 148. Here are the top reasons a taxpayer may receive an income tax notice, based on an exclusive interview with several industry experts.

CA Arpit Jain, Joint MD, Arihant Capital

Getting an income tax notice can be stressful. These notices can be issued for various reasons – from as obvious as failing to file an income tax return or a delay, to calculation errors to a request for specific information pertaining to your filings or reporting excessive losses.

Here are some of the common reasons why taxpayers receive an income tax notice:

a) Mismatch in TDS amount: When the TDS claimed in the Tax return doesn’t match with Form 26AS and 16 or 16A.

b) Mismatch in income: Whenever there is a discrepancy between the income tax return and form 26A.

c) Discrepancy in tax returns: There are times when taxpayers make common mistakes like claiming deductions under the wrong sections, or unintentionally failing to add their interest, rent, dividend, or other incomes in their calculations. Such instances will create discrepancies in their tax returns and what they are actually liable to pay and will invite income tax notice.

d) Discrepancies in disclosure of declared income versus your actual income: This is an obvious one. The income tax department is constantly on the lookout for people trying to evade taxes. If the IT authorities suspect that you haven’t disclosed all your income from various sources, then you could be served with an income tax notice.

e) Failing to report high-value transactions: The Income Tax Department requires taxpayers to report all their high-value transactions, so they can curb black money and detect all under-reported income. In case, you fail to report such transactions then this will invite an IT notice. Examples of high-value transactions include cash deposits or withdrawals over  ₹10 lacs, international transactions in foreign currency over  ₹10 lacs, and purchase of mutual funds, bonds, or debentures of over  ₹10 lacs.

f)  Random scrutiny: If you’re unlucky, you could receive the notice because every year, the IT department randomly selects the files for which IT returns need to be scrutinized. If you have paid your taxes diligently and have all the paperwork in order, you have nothing to worry about.

g) Incomplete documentation: Many times, your income tax returns need to be accompanied by some required documentation. If you fail to provide these, then you will receive a notice. These include but are not limited to: your balance sheet and profit and loss statement in case the net profit from your business income or profession exceeds  ₹1.2 lacs, Form 67 if you have received any foreign income and Form 10E in case of arrears.

Suresh Surana, Founder, RSM India

Some of the reasons due to which taxpayers may receive income tax notice are as follows:

1) Taxpayers not filing their income tax returns irrespective of their total income exceeding the basic exemption threshold or otherwise being eligible for filing such return

2) Mismatch in the income details as per the returned income and Annual Information Summary (AIS)/ Tax Information Summary (TIS)/ Form 26AS

3) Taxpayers have claimed excess TDS than what is reflected in Form 26AS

4) Discrepancy in the calculation of interest u/s 234A/B/C as per the returned income and as per the revenue authorities records

5) Missing out disclosing certain income or failing to apply clubbing provisions

6) Selection of wrong ITR form leading to a defective return

7) Any high value or unusual transaction which is not commensurate with other details of the returned income

Prateek Toshniwal, Co-Founder of IVY Growth Associates | MI Capital (UAE)

There are several reasons why you may receive an income tax notice from the government. One common reason is if you have not filed your tax returns on time or have filed them incorrectly. Another reason could be if there are discrepancies in the information you have provided, such as mismatches in your income or expenses.

Additionally, if you have claimed excessive deductions or exemptions or have not disclosed all your income sources, you may be flagged for further scrutiny. In some cases, if you have received a high-value transaction or made significant investments, the government may also ask for clarification on the source of funds.

It is essential to maintain accurate and complete records of your financial transactions to avoid receiving an income tax notice. In case you do receive a notice, it is important to respond promptly and provide the necessary documents and information to the authorities.

Parry Singh, Founder & CEO, Red Fort Capital

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

a) Mismatch in reported income: If there’s a discrepancy between the income reported in your tax return and the information available to the tax authorities (e.g., TDS, Form 26AS, etc.), you may receive a notice.

b) Non-disclosure of assets: Failing to disclose assets or foreign income in your tax return can trigger an income tax notice.

c) High-value transactions: Engaging in high-value transactions without disclosing them in your tax return may attract a tax notice. These transactions could include large cash deposits, purchase of property or investments, etc.

d) Late filing or non-filing of returns: If you fail to file your tax returns on time or don’t file them at all, you may receive a notice from the tax department.

e) Claiming excessive deductions: If you claim deductions or exemptions that seem excessive or unrealistic compared to your income, the tax authorities may send a notice for further scrutiny.

f) Errors in tax returns: Mistakes like incorrect personal information, wrong calculations, or incorrect tax credits can lead to a tax notice.

It’s crucial to maintain accurate records, report all income and deductions correctly, and file tax returns on time to avoid receiving an income tax notice.

Khazana Associates founder Santosh Badhei

Below are the few top reasons that can get you income tax notice:

1. Discrepancies in Disclosure of Actual Income & Declared Income

2. Inaccurate Information on Assets or Income in The Income Tax Return

3. Unexpected Alters in Investment Amounts, Elevated Transactions or Income

4. Unexpected TDS Inconsistencies When Your TDS Claim Is Incorrect

5. For Review & Evaluation

6. Delayed Income Tax Return Filing

7. Payment of Refunds Against Any Outstanding Debts & Taxes Owed by You

8. For Prior Years of Tax Evasion

Himani Chaudhary, financial advisor

There can be many reasons why individuals may receive an income tax notice in India. Here are some of the top reasons: 

1. If Income Tax Return is not filed on time. 

2. If there is a mismatch in income reported by the individual and the information IT department has from Form 26AS 

3. If income from all sources are not disclosed 

4. If large cash deposits or investments are made which are not aligned with income, they may be flagged by the Income Tax Department. 

5. Failure to declare any foreign account or investments made abroad 

6. ITR filing mistakes can be highlighted asking the individuals to file revised returns.

Authenticate Income Tax Notices and Respond Effectively

Before you respond to any communication received in the name of the income tax department, it is important to verify whether the notice/order issued is genuine and issued by the income tax authority.

You can authenticate the notice/order/letter issued by the income tax authority on the e-filing portal. Let us understand to verify the same.

Step 1: Go to income tax e-filing portal. On the home page, go to ‘Authenticate notice/order issued by ITD’ under ‘Quick Links’.

Step 2: You can authenticate using:

  • PAN, document type, assessment year, issue date and mobile number (for notice/order/letter issued for AY 2011-12 and subsequent years only)
  • Document Identification Number and mobile number (for all assessment years)

Step 3: If you want to authenticate by PAN, document type, assessment year, issue date and mobile number, select the option and enter all the details.

Step 4: After filling in all the details, you will receive an OTP. Enter the OTP received.
Once the OTP is validated, the DIN of the notice issued, along with the date of issue of the notice, will be displayed.

If the notice is not issued by the ITD, it will display a message – No record found for the given criteria.

Step 5: Another alternative is to authenticate using DIN and mobile number.

Step 6: Enter DIN and mobile number and continue. You will receive an OTP. Validate using OTP.

If the notice/order is issued by the income tax authority, it will display a success message, as shown below.

Otherwise, it will show- No record found for the given Document Number

Types Of Notices/Intimations

Notice Under Section 133(6) 

The Income Tax Department has enacted the E-Verification Scheme 2021 which involves calling for information from those taxpayers where material difference is observed between the ITR field and data available in form AIS. The reason for such notice can be as follows

  1. ITR was not filed in spite of having income exceeding the basic exemption limit as per AIS.
  2. Taxable Income in the form of Salary, Interest Income, and Capital gain exists in the Annual Information Statement (AIS). However, values are not entered correctly in the ITR Form.
  3. Significant higher expenditure in the form of Purchase of immovable property, Foreign travel, and Purchase of Mutual funds/stocks in comparison to the Income declared in the ITR

Copy of Notice u/s 133(6)

Steps To Respond To Notice u/s 133(6)

  1. Analyse the reason for receiving such notice and identify if there was any actual misstatement from taxpayer side or error from department
  2. Login to the income tax portal >> Pending Action >> Compliance Portal >> E Verification

Provide detailed response along with necessary attachment in the questionnaire provided 

  1. If the misstatement is from the taxpayer and additional liability is required to be paid, then such taxpayer can file the Updated return u/s 139(8A) along with the necessary penalty voluntarily and provide a response accordingly
  2. However, if the error is from the department side you can provide the response in the insights portal along with supporting documents.

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
  • Both of the above.’

Copy of Section 142(1) Notice 

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 income which 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 nine 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 The Above 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:

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.

For instance, Rohit filed his return on 20th May 2024 for the AY 2024-25. Here notice under section 143(2) can be issued to Rohit within 3 months after completion of the AY to which it pertains, i.e. 31th July 2025.

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.

Are you not sure about what to do with such an income tax notice? Use our Notice Upload Facility to allow us to help you out. Alternatively, you can even seek the help of a Tax Expert.

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;

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.

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 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

Income Tax notice for cash transaction

Depositing an amount exceeding ₹10 lakh in a single or combined financial year attracts attention from the Income Tax Department (ITD) in India. Any cash deposit surpassing ₹10 lakh in a financial year (April 01 to March 31) across all your savings accounts is duly reported to the ITD. The Central Board of Direct Taxes (CBDT) requires banks to report such transactions. Even if the deposit is divided among multiple accounts, any cumulative amount exceeding ₹10 lakh will still be flagged.

The misconception that cashless transactions are less traceable by the Income Tax Department has arisen due to the increasing prevalence of such transactions. Nevertheless, this belief is incorrect. This is because banks and other financial institutions must notify the Income Tax department of transactions surpassing a specified threshold. This encompasses card payments, UPI transactions, as well as cash deposits, and withdrawals beyond a designated limit.

The department employs advanced data analytics tools to detect disparities between declared income and incurred expenses. It can cross-check information from diverse sources such as bank statements, property records, investment details, and travel records to construct a comprehensive financial profile of individuals. Apart, it also can collect information from external sources such as employers, travel agencies, and stock exchanges to validate income sources and pinpoint possible discrepancies.

This degree of scrutiny proves valuable in suspected cases of tax evasion, enabling the department to initiate scrutiny assessments, issue notices, and conduct inquiries directly to accumulate evidence and recover taxes. Below is a compilation of common transactions that could trigger a tax notice, even when conducted in cash:

Depositing large amounts in cash in savings accounts

Depositing an amount exceeding ₹10 lakh in a single or combined financial year attracts attention from the Income Tax Department (ITD) in India. Any cash deposit surpassing ₹10 lakh in a financial year (April 01 to March 31) across all your savings accounts is duly reported to the ITD. The Central Board of Direct Taxes (CBDT) requires banks to report such transactions. Even if the deposit is divided among multiple accounts, any cumulative amount exceeding ₹10 lakh will still be flagged.

Surpassing the ₹10 lakh limit doesn’t inherently suggest tax evasion, but it does prompt scrutiny from the Department. Explaining the source of the deposited funds becomes necessary, particularly if it doesn’t align with your declared income. If the explanation is considered unsatisfactory or if discrepancies arise in your tax returns, you could potentially face additional inquiries or penalties.

The ITD’s evaluation is also influenced by the intended use of the deposited funds. For instance, placing business income into a personal account could lead to concerns. Your comprehensive financial profile, encompassing income sources, expenses, investments, and other significant transactions, is taken into account by the ITD. Ensuring compliance is essential; maintaining accurate records and aligning your tax returns with your income and expenses is crucial to prevent unwarranted scrutiny.

Fixed deposits made with cash

Given the recent uptick in fixed deposit (FD) rates, these have become increasingly appealing choices for investors, especially for those in search of a steady and predictable income. The existing limit for reporting cash deposits to the ITD is ₹10 lakh within a single financial year (April 01 to March 31), irrespective of the purpose, including fixed deposits. It is crucial to take note of multiple deposits across different bank accounts. Even if you divide the cash deposit into smaller amounts across various accounts, any combined sum surpassing ₹10 lakhs will be brought to the attention of authorities.

Surpassing the limit doesn’t inherently indicate tax evasion, but it does attract the ITD’s attention, necessitating an explanation for the source of the funds. This scrutiny applies to any fixed deposit exceeding ₹10 lakhs.

The ₹10 lakh limit applies to the cumulative value of your FD holdings across all accounts and financial institutions, not solely to the individual deposit amount. Similar to cash deposits, surpassing this threshold may trigger inquiries regarding the source of funds, particularly if it doesn’t align with your declared income.

Purchases of shares, mutual funds, and bonds made in cash

Investing in bonds, shares, mutual funds, and debentures with cash transactions could result in an income tax notice if the investment surpasses a threshold of ₹10 lakh. Digital transactions, on the other hand, leave behind an online trail for both investors and the ITD alike.

Surpassing a particular threshold may prompt scrutiny from the ITD, but it does not automatically indicate the issuance of a tax notice or any wrongdoing. The ITD’s emphasis lies in identifying inconsistencies between declared income and expenses rather than discouraging investment through specific thresholds.

Repaying credit card bill in cash

There is no explicit rule mandating automatic scrutiny for cash payments towards credit card bills, irrespective of the amount. However, if you make a cash payment for a monthly credit card bill exceeding ₹1 lakh, the department automatically seeks information about the source of funds.

Surpassing any high-value transaction threshold, which includes cash payments, could initiate general scrutiny by the ITD. This examination is designed to uncover possible disparities between your declared income and expenses and is not specifically focused on credit card bill payments.

Cash payments related to properties

In India, when acquiring a property valued at over ₹30 lakhs, the ITD mandates the buyer to disclose the origin of the funds utilized for the purchase. This measure is implemented to counteract tax evasion and prevent money laundering activities.

The existing threshold for compulsory declaration of the source of funds is ₹50 lakhs for property acquisitions in urban areas and ₹20 lakhs for rural areas. Nevertheless, certain states may enforce more stringent thresholds, hence it is advisable to verify the specific regulations applicable in your region.

You have the option to declare the source of funds by including it in the registration documents or by submitting Form 26QB to the ITD. Even if the property purchase value is below the threshold, the Department retains the authority to request the source of funds if there are suspicions of discrepancies in your income or other transactions. Neglecting to declare the source of funds may result in penalties, tax assessments, and potentially lead to investigations.

To address an ITD notice concerning high-value cash transactions, it is essential to possess sufficient documentation substantiating your assertion about the source of funds. This documentation may include bank statements, investment records, or inheritance papers.

If you are uncertain or have concerns regarding the declaration of the source of funds, it is advisable to seek advice from a qualified tax advisor for personalized guidance. Upholding transparency and adhering to tax regulations is essential for prudent financial management and mitigating potential legal complications.

Common Income Tax Notice FAQs: Different Types of Assessments and Notices Under Income Tax Law

Income Tax Notice FAQs: Tax payer may get the notices in different ways, for every notice there are different section and different possibility’s, assessing officer Or ITD will issue the notice according the errors and return furnishing perspectives.

1. What is meant by assessment?

Every taxpayer has to furnish the income and investment details to the Income-tax Department. These details are to be furnished by filing return. Once the return is filed by the taxpayer, the next step is the processing of the return by the Income-tax Department. The Income-tax Department examines the return. The process of examining the return of by the Income-tax Department is called “Assessment”. Assessment also includes re-assessment or best judgment assessment.2.

2. What are the different types of notices or assessments under the Income-tax Law?

There are different types of notices or assessments as given below:

  1. Defective Income Tax Return: Section 139(9).
  2. Calling for information u/s 133(6) of the Income Tax Act, 1961,
  3. Income is concealed or likely to be concealed: Section 131(1A).
  4. Preliminary Enquiry before an assessment: Section 142(1).
  5. Notice of demand: Section 156.
  6. Refund adjusted against the tax demand: Section 245.
  7. Follow up to the notice u/s 142(1): Section 143(2).
  8. Summary assessment without calling the taxpayer: Section 143(1).
  9. Scrutiny assessment: Section 143(3).
  10. Best judgment assessment: Section 144.
  11. Income escaped assessment: Section 148 & 147.

3. What is meant by defective return under the section 139(9)?

This notice is sent by Assessing Officer of the opinion that ITR filed by the taxpayer is defective or incorrect.

And the Assessing Officer will provide the

  1. Proper description of the errors
  2. The solution that possible use to rectify those errors

Examples: Incomplete returns, parts of information missing, file a wrong ITR The tax payer has submit the response within 15 days from the notice received date, if the tax payer don’t respond then the return will be rejected by AO. The tax payer can submit the response in 2 ways

  1. Tax payer agreed to observation of assessing officer, then tax payer will submit the revised return with rectifying the errors raised.
  2. Tax payer does not agree with the error description then tax payer can reply to the income tax notice and share the reasons and proofs for the same.

For a details on how to address defective returns, refer Defective Notice: How to Prepare, Upload JSON

4. What is section 131(1A), and what are reasons to get notice u/s 131(1A)?

Assessing Officer is of the opinion that tax payer are concealing the income or likely to conceal income then tax payer will receive notice u/s 131(1A). This notice is basically intimation that AO is initiating an enquiry or investigate into the matter. The AO should expect the attendance of tax payer and books of accounts, statement of all bank accounts, details of all properties acquired during the financial year. Tax payer can seek the permission for attend someone behalf of tax payer, extension of time for valid reasons.5.

5. What is meant by Preliminary Enquiry notice u/s 142(1)?

Tax payer will get a notice of preliminary enquiry in case the return is not filed on time, then tax payer will furnish a return of income in respect of which is assessable.

OR

AO would like to go through the documentary proof to verify tax payer claim in Income Tax Return then AO may ask you to furnish the documents for assessment purpose.

The time limit to answer is before the end of the relevant assessment year.

If tax payer not responded to this notice:

It may result in Best Judgement Assessment u/s 144, or

Penalised u/s 271(1)(b) i.e. Rs.10,000 for each failure.6.

6. What is meaning of section 156 outstanding demands?

This notice will serve the ITD, when the tax payer has any dues like tax, interest, penalty, fine or any other sum is payable. Normally this notice is served after the assessment of ITR. The taxpayer can deposit the amount payable within 30 days from the date of the income tax notice. Or if any mistakes in original return then tax payer can do the revised return and submit the revised acknowledgement. There is no time limit to serve this notice. And also refer Income tax notice under section 143(1).7.

7. What is section 245 under income tax act?

This is called intimation

This intimation means offset tax payer refund (full/partial) against the old tax payable or due8.

8. What is section 143(2) notice?

This notice will issue by Assessing Officer, if not satisfied with the response of the taxpayer or tax payer failed to provide the proofs or documents against the notice 142(1). So this notice is a detailed scrutiny.

The AO should expect the attendance of tax payer and books of accounts, statement of all bank accounts, details of all properties acquired during the financial year.

The timeline to serve notice u/s 143(2) is before the expiry of six months from the end of FY in which the return is furnished.

Where the taxpayer has not furnished return, then notice under Section 143(2) cannot be issued to him and also scrutiny assessment cannot be done. In such case, direct Best Judgement Assessment under Section 144 is done by the AO.

If tax payer not responded to this notice: It may result in Best Judgement Assessment u/s 144, or

Penalised u/s 271(1)(b) i.e. Rs.10,000 for each failure9.

9. What is notice under section 143(1)?

The notice/intimation under section 143(1) issued by ITD in 2 different ways

1. Intimation:

Return furnished by the taxpayer and as verified by the Income Tax department match.

Then the Intimation will serve as final assessment of the return with nothing to be done on part of the taxpayer and the department. Take a printout of the same and file it with your income tax papers.

If the tax payer has refund, wait for the cheque or transfer into your account.

2. Notice:

Return furnished by the taxpayer and as verified by the Income Tax department does not match, which means in tax payer return there is some arithmetical errors or tax due.

The tax payer can submit the response in 2 ways

  1. Tax payer agreed to observation of assessing officer, then tax payer will submit the revised return with rectifying the errors raised.
  2. Tax payer does not agree with the error description then tax payer can reply to the income tax notice and share the reasons and proofs for the same.

Time limit is depending up on the ITR process10.

10. What is scrutiny assessment u/s 143(3)?

This is a detailed assessment and is referred to as scrutiny assessment. The scrutiny is carried out to confirm the correctness and genuineness of various claims, deductions, etc., made by the taxpayer in the return.

In the cases selected for scrutiny, the assessing officer conducts necessary enquiries during assessment proceedings to ensure that the tax payer not understanding the below:

  • Understated the income
  • Computed excessive loss
  • Underpaid tax in any manner

Time limit:

  • 21 months from the end of the AY in which the income was first assessable. [To AY 2017-18 or before]
  • 18 months from the end of the AY in which the income was first assessable. [To AY 2018-19]
  • 12 months from the end of the AY in which the income was first assessable [To AY 2019-20 and onwards]

11. What is mean by Best judgment 144 and when it issues?

The Assessing Officer issues the Best Judgment 144 for the bellow reasons

  1. The taxpayer fails to file the return of income as required within the due date u/s 139(1) or after due date u/s 139(4) (belated) or a revised return u/s 139(5).
  2. The taxpayer fails to fulfil with notice issued under section 142(1). (For 142(1) please refer question number 5)
  3. The taxpayer fails to fulfil directions or notice issued u/s 142(2A).

Note: Section 142(2A) deals with special audit. As per section 142(2A), if the conditions justifying special audit as given in section 142(2A) are satisfied, then the Assessing Officer will direct the taxpayer to get accounts audited from a chartered accountant

The Assessing Officer is not satisfied by the arguments of the taxpayer and AO has reason to believe that the case demands a best judgment, and then AO will proceed to carry out the assessment as per best of knowledge.

Criteria of best judgment assessment are satisfied, then after taking into account all relevant material which the Assessing Officer has gathered, and after giving the taxpayer an opportunity of being heard, the Assessing Officer shall make the assessment of the total income or loss to the best of judgment and determine the sum payable by the taxpayer on the basis of such assessment.12.

12. What is scrutiny assessment u/s 143(3)?

If the Assessing officer has reasons to believe that any income chargeable to tax has escaped assessment for any assessment year, he may subject to the provisions of Sec 148 to 153, assess or reassess such income and also any other income chargeable to tax which comes to his notice subsequently in the course of proceedings.

Circumstances when income is deemed to have escaped assessment

The following shall be deemed to be the cases where income chargeable to tax has escaped Assessment.

  • Where the total income of the tax payer during the previous year has exceeded the maximum amount which is chargeable to income tax and no return of income has been furnished by the tax payer.
  • Where the return of income has been furnished by the tax payer and it is noticed by the AO that the tax payer has understated the income, claimed the excessive loss, deduction, allowance or relief in the return and no assessment has been made.
  • The assessee has failed to furnish a report in respect of any international transaction u/s 92E.
  • It is noticed by the AO that the income of the tax payer exceeds the basic exemption limit based on the information or document received u/s 133C(2) and the return of income has not filed.
  • It is noticed by the AO that the tax payer has understated the income or claimed an excessive loss, deductions; allowance in case of return of income has been filed.
  • Where the return of income has been furnished by the tax payer and assessment has been made and it is noticed by the AO that the tax payer has understated the income, claimed the excessive loss, deduction, allowance or relief in the return.