Income Tax Return (ITR) filing is just one aspect of compliance. If a taxpayer fails to file a return successfully, he may receive notices from the Income Tax Department. The department also issus notice after filing , as if the information presented in the return does not correspond with the data available with the Department.
In this era of Artificial Intelligence (AI), data analytics and automated verification systems, the Income Tax Department can quickly spot variations between the income reported by taxpayers and the data received from banks, employers, financial institutions and other reporting entities.
It is important to be alert regarding the ITR filing.
The Income Tax Department has enhanced its capability to detect anomalies in tax returns through its technology-driven compliance framework. Slight deviations between the Income Tax Return and data accessible via AIS, TIS, Form 26AS, SFT, GST records and other reporting platforms even trigger alerts.
Why are notices issued by the Income Tax Department?
The Income Tax Department is getting the financial information from many sources such as employers, banks, mutual fund institutions, stock exchanges, registrars and government agencies and were consolidated through the systems like Annual Information Statement (AIS), Tax Information Statement (TIS), Form 26AS and Statement of Financial Transactions (SFT). When the details mentioned in ITR do not match with the information accessible in these databases, the Department’s automatic systems may flag the return for verification/clarification/assessment.
Mismatches that lead to Income Tax notifications.
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1. Difference between AIS, TIS and Income declared in ITR
The key grounds for an Income Tax notice is a mismatch between the Annual Information Statement (AIS), Tax Information Statement (TIS) and the income reported in the return. AIS has detailed financial information such salary, interest income, dividend income, transactions in securities, transactions in property, and high-value financial transactions. If any income is shown in AIS that has not been disclosed in ITR, the taxpayer may receive a notification asking an explanation. To avoid the mismatch, always download and reconcile AIS and TIS before you file the return.
2. Variation in Form 26AS
Form 26AS contains the details of Tax Deducted at Source (TDS), Tax Collected at Source (TCS), advance tax, self-assessment tax.
Typical problems are:
- Excess TDS credit claim filing
- TDS entries missing
- Deductor has quoted incorrect PAN
- Claiming a tax credit which the person is not entitled to
Any mismatch between Form 26AS and ITR can lead to a notification or delay in getting the refund.
3. Salary Income not reconciling with Form 16
Some of the employees are getting a different wage from what is reported in Form 16.
Reasons include:
- No perks
- Ignoring tax allowances
- Incorrect exemption reporting
- Mistakes when changing employers in the fiscal year
Such mismatches can easily be spotted by employers filing TDS data.
4. Underreporting of Interest Income
Most taxpayers simply declare interest from savings accounts and neglect:
- Interest on Fixed Deposits
- Interest on Recurring Deposits
- Interest on post office deposits
- Corporate deposits earnings
Banks tell the Income Tax Department these facts and any omission is clearly traceable.
5. Capital gains not properly declared
The reporting of capital gains has emerged as one of the key emphasis areas for tax authorities.
Taxpayers often do not declare:
- Stock trades –
- Redemptions of mutual funds
- Sale of real property
- Bonds Transactions
- Digital Asset Transfer
These transactions may already be available in AIS even if TDS is not deducted.
6. Financial Transactions of Value
Statement of Financial Transactions (SFT): Banks and financial institutions record certain high-value transactions.
Including:
- Large amounts of cash
- Credit card payments with high values
- Purchasing property
- Purchasing mutual funds
- Investment in bonds
- Fixed deposits outside the permissible limits
If such transactions are not in line with the declared revenue, they can come under the scanner.
7. Inaccurate Deduction Claims
Often notices are issued for excess deductions not warranted by any provisions.
Typical examples include:
- Incorrect claim u/s 80C – Unsupported claims for medical insurance
- Wrong deduction of house loan interest
- Deductions that are double-counted
- Claims for deductions lacking supporting documentation
Taxpayers should retain supporting paperwork for all requested deductions.
8. Error in Income from House Property
Common mistakes for house property reporting:
- Failure to declare rental income
- Wrong calculation of local taxes
- Incorrect interest deduction
- Incorrectly reporting several house properties
The department may enquire as to such differences.
9. Reporting of Foreign Income and Foreign Assets
Resident taxpayers possessing foreign bank accounts, overseas interests or foreign income will have to make full disclosures in the specified schedules of the ITR. Failure to disclose foreign assets may invite harsh procedures under the Income-tax Act and the Black Money (Undisclosed Foreign Income and Assets) Act.
10. Discrepancy in business turnover
Businesses and professionals must maintain consistency between:
- GST returns
- Books of accounts
- Statement of financial position
- Tax inspection reports
- Statement of income tax
Often, notices are issued when there is a mismatch between the GST turnover and income recorded in the ITR.
11. Dividend Income Unreported
Companies, mutual funds and depositories inform the Income Tax Department on the payment of dividend . Various investments often include tiny dividend credits that many taxpayers overlook. Even little omissions can be reflected in AIS and cause notices of mismatches.
12. Claiming refund without appropriate tax credit
On occasion, taxpayers seek refunds even when the tax credits are not recorded in Form 26AS.
This usually occurs owing to:
- Invalid PAN
- Delay in TDS submission by the deductee
- Incorrect assessment year was selected
- Errors in data entry
This type of instance usually delays the reimbursement process.
How Chartered Accountants Can Avoid Mismatches
Chartered Accountants are key to ensuring accurate filing of returns. Before submitting an ITR, professionals should :
- Match AIS, TIS, Form 26AS and Form 16.
- Check all TDS and TCS credits.
- Verify capital gains statements.
- Where applicable, reconcile GST turnover with the financial accounts.
- See bank interest, dividend income and other passive income.
- Verify deduction claims with accompanying documentation.
- Verify disclosure of foreign assets if applicable.
- Make sure you are choosing the right ITR forms and schedules.
Systematic pre-filing screening considerably decreases the possibility of notices.
What Do Taxpayers Do if They Receive a Notice?
Getting a notice from Income Tax does not amount to tax evasion. Many alerts are issued because of valid reporting mismatches or clerical errors.
Taxpayers are expected to:
- Read the notice well.
- Select the appropriate evaluation year.
- Check the notice with AIS, Form 26AS and filed ITR.
- Gather evidence.
- Submit your response within the time limit through the e-Filing portal of Income Tax.
- If the problem is complicated, get expert help.
Responses to prompts usually help settle disputes without lengthy litigation.
Conclusion
The best protection for taxpayers from unwanted attention is to double-check everything before submitting. The ITR filing season has become a full reconciliation process, an integral element of the professional practice of Chartered Accountants.
Taxpayers can reduce the chance of receiving post-filing notices and avoid a more cumbersome assessment procedure by carefully analysing all sources of financial information, validating tax credits, accurately reporting all income and keeping proper paperwork. As tax administration becomes increasingly data-driven, accuracy, transparency and timely compliance remain the cornerstones of a hassle-free Income Tax filing.
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