Table of Contents

Income Tax Notices in India: Types, Response Steps & Real Case Example

1. Introduction

Income Tax in India is governed by the Income Tax Act, 1961, along with the Income Tax Rules, notifications, and circulars issued by the Central Board of Direct Taxes (CBDT). The tax authorities issue Income Tax Notices to taxpayers for various reasons, including scrutiny, reassessment, and compliance.

Understanding these notices, their implications, and how to respond is crucial to ensuring compliance and avoiding penalties. This guide explains different types of notices, their purpose, timelines, and responses required.

2. Types of Income Tax Notices

2.1 Intimation under Section 143(1)

Purpose: This is an initial processing intimation issued by the Centralized Processing Centre (CPC), detailing discrepancies in the tax return.

Key aspects considered:

• Arithmetical errors in the return.

• Incorrect claim of exemptions or deductions.

• Disallowance of incorrect losses or expenditures.

• Inclusion of any income not mentioned in the return.

Response Required:

• If there is no discrepancy, no action is required.

• If a tax demand is raised, it must be paid before the due date.

• If a refund is issued, verify bank details for correct crediting.

2.2 Notice under Section 143(2) – Scrutiny Notice

Purpose: Issued when the tax department selects a case for scrutiny.

Types of Scrutiny:

• Limited Scrutiny: Focuses on specific discrepancies.

• Complete Scrutiny: A detailed review of all financial transactions.

Timeline: Issued within six months from the end of the financial year in which the return was filed.

Response Required:

• Submit documents as requested within the stipulated timeframe.

• Attend hearings if required or respond online via the Income Tax e-filing portal.

2.3 Notice under Section 142(1) – Inquiry Notice

Purpose: Issued when additional information is required after filing the return or when the taxpayer has not filed a return despite being liable.

Failure to Respond:

• A penalty of INR 10,000 can be levied.

• Prosecution for up to one year may apply.

Response Required:

• File the pending tax return if applicable.

• Submit the required documents and respond via the e-filing portal.

2.4 Notice under Section 148 – Reassessment Notice

Purpose: Issued when the Assessing Officer (AO) believes that income has escaped assessment.

Timeline for Issuance:

• Within 4 years if the undisclosed income is below INR 1 lakh.

• Within 6 years if the escaped income exceeds INR 1 lakh.

• Within 10 years if income escaped is INR 50 lakh or more.

Response Required:

• File a revised return or respond with an explanation for the discrepancy.

2.5 Notice under Section 245 – Adjustment of Refunds Against Tax Demand

Purpose: Issued when the tax department intends to adjust a tax refund against an outstanding tax demand.

Response Required:

• The taxpayer must confirm or contest the adjustment within the specified time.

• If disagreeing, file a response with supporting documents.

How to Respond to an Income Tax Notice

• Verify the authenticity on the Income Tax Department’s official website.

• Understand the reason for the notice and the deadline for response.

• Collect relevant documents to support your response.

• Respond within the due date via the Income Tax e-filing portal.

• Seek professional assistance if required.

4. Consequences of Ignoring an Income Tax Notice

Failure to respond can lead to:

• Penalties and interest on unpaid taxes.

• Prosecution for non-compliance in serious cases.

• Tax demand adjustments affecting refunds.

5. Case Study: Real-Life Example of Income Tax Notice Resolution

A taxpayer, Mr. Sharma, received a Section 143(2) Scrutiny Notice for a high-value transaction. By responding with proper documentation and explanations, he successfully reduced additional tax liability and avoided penalties.

Staying informed about tax notices helps taxpayers avoid penalties and manage tax liabilities effectively. For expert guidance, consult a tax professional or use online services specializing in tax compliance.

Reach out to us on email: info@returnfilings.com or on whatsapp: https://wa.me/919910123091 to seek professional advice related to Income Tax Notices and their replies / responses.

frequently asked questions (faq's) related to Income Tax Notices and their reply

Q What is an income tax notice?+

Q Why are income tax notices issued?+

Q What are the different types of income tax notices?+

Q What should I do if I receive an income tax notice?+

Q What is the time limit for responding to an income tax notice?+

Q What happens if I don't respond to an income tax notice?+

Q Whom should I consult if I receive an income tax notice?+

Q What is a notice under Section 143(1)?+

Q What is a notice under Section 143(2)?+

Q What is a notice under Section 148?+

Q What is a notice under Section 156?+

Q How are income tax notices served?+

Q Can I reply to an income tax notice online?+

Q How can I avoid receiving income tax notices?+

Q How do I check the status of my income tax notice?+

Q What is the meaning of "TDS mismatch" in an income tax notice?+

Q How do I respond to a notice for non-filing of return?+

Q What is the difference between a notice and an assessment order?+

Q Can I appeal an income tax notice?+

Q How do I know if an income tax notice is genuine?+

Q What is the role of a tax consultant in handling income tax notices?+

Q What should I do if I receive a notice for income that I have already declared?+

Q How can I update my contact details with the Income Tax Department?+

Q Where can I find the latest circulars and notifications related to income tax notices?+