Clipped from: https://taxguru.in/income-tax/ais-26as-mismatch-trigger-tax-notices-taxpayer.html
Introduction
Just last month, a client of mine—a schoolteacher—received an unexpected notice for underreporting interest income of only ₹1,000. She was shocked because she assumed the TDS deducted by the bank had taken care of everything. That’s when I realized how many people are caught off guard by these mismatches.
With the rapid digitization of the current tax system, the Income Tax Department of India is now much more capable of finding and verifying the financial information of taxpayers. Today, two important tools—Form 26AS and AIS (Annual Information Statement)—play a crucial role in verifying the information provided in a taxpayer’s Income Tax Return (ITR).
What does this mean for ordinary taxpayers like us?
Sometimes, even a tiny mismatch—like a missing ₹500 interest entry—can make the system assume you earned more than you reported—and send you a tax demand based on that.
In this article, we will discuss how such discrepancy occurs, some common cases in which it occurs, what its legal consequences can be, and how you can protect yourself from this complication by taking actionable and practical steps.
Because in today’s digital age, “no notice” does not mean everything is fine.
What Are Form 26AS and AIS?:
Now that we know what these statements are, let’s understand how even the smallest mismatch can become a problem.
i. Form 26AS: A consolidated statement showing TDS/TCS, advance tax, self-assessment tax, refunds, etc.
ii. AIS: It contains detailed information such as:
- Interest from banks
- Dividend income
- Stock market transactions
- Mutual fund purchases
- High-value transactions
- Foreign remittances
- Credit card payments and other specified financial transactions
Why Notices Happen—Even When You Think You’ve Done It Right?:
Here are some common reasons for mismatches that can trigger a notice from the Income Tax Department:
a. Not reporting Interest Income
In my experience as a tax consultant, I’ve seen salaried taxpayers forget to include bank FD interest, resulting in unexpected adjustments under Section 143(1)(a). These adjustments often come as a surprise, especially to those who believe TDS deduction alone is enough to cover their compliance.
b. Mismatch between TDS section and the actual nature of income
Sometimes, taxpayers declare income under presumptive schemes like Section 44AD, while TDS has been deducted under Section 194H (commission) or 194J (professional services). This signals a contradiction in the nature of income reported and raises red flags.
c. Capital Gains Not Reported
With AIS automatically capturing trades in equities, mutual funds, and bonds, skipping capital gains in your ITR—even unintentionally—can trigger discrepancies and scrutiny.
d. Claiming TDS that doesn’t reflect in Form 26AS
If you claim TDS that doesn’t appear in your Form 26AS, the system may simply reject that credit or mark your return as defective. This could leave you dealing with unnecessary confusion and follow-ups later on.
e. Mismatch in Total Receipts
When your declared total income in the ITR doesn’t match what’s reflected in the AIS, the department might interpret it as underreporting—even if it was an honest mistake.
What happens when there’s a mismatch? Here’s how the Income Tax Department may respond:
- Intimation u/s 143(1)(a): At the processing stage, if the system spots discrepancies, it may automatically adjust your return and send you an intimation. Often, this comes as a surprise to taxpayers who didn’t even realize they made a mistake.
- Scrutiny Assessment u/s 143(2): The department doesn’t take major mismatches lightly. In such cases, they may take up the return for a full scrutiny assessment.
- Demand Notices: In cases where the mismatch leads to a higher assumed income, the department may raise a demand for additional tax. That unexpected tax bill can feel overwhelming—especially if you weren’t prepared for it.
- Penalty Proceedings: Under-reporting or misreporting of income may not just end with tax demand. Under Section 270A, the department can also impose penalties—or in rare cases, things could even escalate to legal trouble—something no one wants to deal with.
Here’s How I Help Clients Avoid Trouble:
i. Before Filing ITR:
- I always tell my clients: Before you file, sit with your 26AS and AIS. Cross-check them with your income details—it only takes 10 minutes and could save you weeks of follow-up.
- Make sure all your income is reported—whether taxable or exempt. Don’t miss out on interest from savings, dividends, or capital gains, even if the amounts seem small.
- Choose the correct ITR form and ensure each type of income is reported under the appropriate head. A small error here can lead to a big headache later.
ii. After Filing (if you receive a notice):
- Take a deep breath-don’t panic. First, calmly download and read the notice or intimation.
- Compare your filed ITR with your AIS and Form 26AS to find where the mismatch occurred.
- If allowed, file a revised return to correct the error.
- If a revision isn’t possible, respond through the e-Proceedings portal with a clear explanation and supporting documents
Judicial View on Mismatches between ITR and Form 26AS/AIS
Indian courts and tax tribunals have consistently held that Form 26AS and AIS are not conclusive proof of income—but they do serve as a valid starting point for investigation or inquiry. Just because something appears in these statements doesn’t automatically mean it’s taxable—but it definitely calls for a clear explanation from your side.
Conclusion
AIS and Form 26AS aren’t just reference tools anymore—they’ve become powerful instruments used by the Income Tax Department for active verification. Ignoring them can lead to serious consequences, such as:
- Receiving a notice for a defective return
- Your return being selected for scrutiny assessment
- Tax demands and even penalty proceedings.
That’s why taxpayers must actively review and reconcile these statements before filing their returns. If there’s any mismatch, it’s important to act quickly and correct it.
To be honest, I believe AIS and 26AS will only get more detailed over time. That’s good for transparency but tough on those who aren’t financially literate. As professionals, it’s our duty to spread awareness, not just file returns.
After all, taxes aren’t just about money—they reflect the trust between citizens and the system. Let’s make sure we get it right
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