By Amarpal S Chadha
As India’s tax compliance landscape becomes increasingly digitised and data-driven, individual taxpayers are receiving income tax notices from tax authorities. Here are some types of tax notices issued to individual taxpayers, their causes, and actionable steps to address them.
Intimation under Section 143(1)
This is issued after processing the income tax return. It may confirm acceptance, indicate a refund, or raise a demand due to discrepancies in income, deductions, or TDS claims. These notices must be issued within nine months from the end of the financial year in which the return was filed. If the processed return matches with the filed return, no further action is needed. For refunds, taxpayers should ensure their bank account is pre-validated. If a demand is raised, it must be paid within 30 days to avoid interest, or if the demand appears incorrect, a rectification request can be filed.
Defective return notice
It is issued under Section 139(9) when an income tax return (ITR) has defects, such as mismatches in income, TDS, or PAN details. Tax authorities clearly specify the issue and allow 15 days for rectification via the e-filing portal. If not rectified, the tax return may be treated as invalid, leading to penalties and loss of benefits like carry-forward of losses, etc.
Inquiry notice
It is issued under Section 142(1), either to request filing of a return if not already filed, or to seek additional information to verify details in a filed return. Tax authorities may ask for documentation supporting income, deductions, exemptions, or specific transactions. Each notice specifies a clear deadline for response, and taxpayers are required to comply via the e-filing portal. Failure to respond may lead to a best judgment assessment under Section 144, potentially resulting in a higher tax liability.
Scrutiny notice
It indicates that a taxpayer’s return has been selected for detailed scrutiny. It is issued under Section 143(2) within three months from the end of the financial year in which the ITR was filed. This notice aims to verify the accuracy of reported income, deductions, and exemptions. Selection of these cases may be triggered by high-value transactions, search or survey cases, intelligence inputs, or recurring issues. Taxpayers may be asked to submit bank statements, Form 16, salary slips, and investment proofs.
Notice under Section 133(6)
This section empowers designated tax officials to seek information from individuals, businesses, or even third parties such as banks and employers. These notices are typically issued when the tax authorities suspect discrepancies in tax filings or require additional data to verify financial transactions. While there is no fixed statutory time limit for issuing these notices, recipients are expected to respond within the deadline specified in the notice. Failure to comply can lead to penalties and reassessment.
To respond effectively to any tax notice, it is essential for taxpayers to maintain documentation such as income proofs, investment details and transaction summaries.
The writer is tax Partner, EY India. Inputs from Shanmuga Prasad, director, EY India