7 Common Reasons To Receive an Income Tax Notice: Why You Might Receive a Notice from the IT Department?
- PRITI SIRDESHMUKH
- 2 days ago
- 15 min read
Getting an Income Tax Notice can make any taxpayer anxious, but not every notice means you’ve done something wrong. The Income Tax Department issues these notices for several reasons: sometimes to correct a simple mismatch in your Income Tax Return (ITR), and other times to verify high-value transactions or confirm the deductions you’ve claimed.
In most cases, it’s about data verification, clarification, or missing information, not penalties. The department uses automated systems to match your reported income, TDS, and tax deductions with information from banks, employers, and financial institutions. If there’s even a small difference, a notice may be triggered to confirm accuracy.
Some notices are purely informational, like the acknowledgment of ITR processing under Section 143(1), while others request supporting documents or explanations. What matters most is understanding why you received it and responding correctly within time.
To help you avoid confusion, here are the seven most common reasons taxpayers receive an income tax notice, and how you can handle them easily and confidently.
Table of Contents
Why You Might Receive a Notice: 7 Common Reasons Explained
Your TDS Records Don’t Match the Department’s Data
A mismatch between your TDS (Tax Deducted at Source) and the income you’ve shown in your ITR is one of the most common reasons the Income Tax Department sends a notice. Every time tax is deducted from your income, whether by your employer, bank, or a client, it’s reported to the department under your PAN and reflected in Form 26AS and the Annual Information Statement (AIS).
When you file your ITR, the system compares these records automatically. If there’s a gap between what’s reported in your return and what’s reflected in the department’s database, the system raises a red flag.
Common reasons this happens
Your employer or bank made an error while filing their TDS return.
TDS was deducted but not deposited in time.
You entered an incorrect figure while claiming TDS credit.
Income was reported under the wrong head (for example, “salary” instead of “professional income”).
Example
Suppose your bank deducted ₹3,000 as TDS on FD interest but failed to update it in their quarterly TDS return. When you file your ITR and claim this TDS, the system doesn’t find a matching record, leading to an Income Tax Notice under Section 143(1)(a) asking you to explain or revise your return.
What you can do
Check your Form 26AS and AIS on the income-tax portal.
Match the entries with the income and TDS you’ve declared in your return.
If you spot an error from the deductor’s side, request them to revise their TDS return.
If your own filing has an error, file a rectification request under Section 154.
Discrepancy Between Declared Income and Reported Data
Another frequent reason for receiving an Income Tax Notice is when the income declared in your Income Tax Return (ITR) doesn’t match the information available with the Income Tax Department.
The department collects financial data from multiple sources, your employer, banks, mutual fund houses, stockbrokers, and property registrars. All of this information appears in your Annual Information Statement (AIS) and Taxpayer Information Summary (TIS). When the figures in your ITR don’t align with these records, the system automatically detects the mismatch and flags it for review.
Common causes of discrepancies
Forgetting to include interest income from savings or fixed deposits.
Not declaring dividends, capital gains, or rental income shown in AIS.
Reporting partial salary when Form 26AS reflects the full amount.
Missing joint investments or co-owned property income.
These mismatches don’t necessarily mean there’s tax evasion, sometimes, it’s a genuine oversight or a reporting delay. However, if left unresolved, they can result in a notice under Section 142(1) or 143(1)(a) asking for clarification or a supporting document.
Example
Imagine you earned ₹8,00,000 as salary and ₹15,000 interest on your savings account. You filed your ITR showing only salary income. Since your bank has already reported the interest under your PAN, the system detects an unreported income of ₹15,000 and sends a notice seeking an explanation.
How to handle it
Download your AIS and Form 26AS from the income tax portal.
Compare line by line with your ITR to identify the mismatch.
If you missed any income, file a revised ITR immediately.
If the error is in the AIS (for example, a wrong PAN or duplicated entry), submit feedback marking it as “Incorrect” or “Not Applicable.”
Reply to the notice through the e-Proceedings tab on the income-tax portal, attaching relevant explanations or proofs.
Non-Filing or Late Filing of Income Tax Return (ITR)
If your total income for the year exceeds the basic exemption limit, you are legally required to file an Income Tax Return (ITR). Failing to do so can automatically trigger an Income Tax Notice, even if all your taxes were already deducted at source.
The Income Tax Department uses advanced tracking systems that monitor every PAN-linked transaction, salary credits, bank deposits, property deals, stock trades, or mutual fund investments. If your records show financial activity but no ITR filed for that year, the system flags it for review.
In most cases, you’ll receive a notice under Section 142(1) asking why your return hasn’t been filed, or under Section 148A if the department believes you’ve underreported or missed taxable income.
Common scenarios where this happens
You changed jobs and assumed the employer’s TDS filing covered everything.
You earned income from freelance work or interest that wasn’t taxed at source.
You had a refund due but skipped filing because you thought filing wasn’t necessary.
You missed the deadline (31 July for most taxpayers) and forgot to submit a belated return.
Example
Priya, a marketing consultant, earned ₹9,00,000 in FY 2024–25 through multiple clients. Since most of her payments had TDS deducted, she assumed no separate filing was needed. A few months later, she received a notice under Section 142(1) asking her to file her return and explain the delay, because her bank and clients had reported high-value receipts under her PAN.
Consequences of late or missed filing
Penalty under Section 234F: ₹1,000 to ₹5,000, depending on your income.
Interest on unpaid tax: Calculated under Sections 234A, 234B, and 234C.
Loss of carry-forward benefits: You can’t carry forward business or capital losses if the return is filed late.
Possible scrutiny: Continuous non-filing can attract deeper investigation.
How to fix it
If you missed the deadline, file a belated return immediately.
If the notice has already been issued, respond promptly and attach your filed ITR as proof.
If income was genuinely below taxable limits, reply to the notice with supporting documents (bank statements, Form 16, etc.).
Avoid ignoring it, non-response can lead to a best judgment assessment under Section 144, where the tax officer estimates your income and raises a demand.
Incorrect or Unsupported Deductions Claimed
Many taxpayers receive an Income Tax Notice because of incorrect or incomplete claims made while filing their Income Tax Return (ITR). Sometimes the mistake is unintentional, you may have misunderstood the eligibility for a deduction, missed uploading proof, or claimed the same benefit twice.
When the Income Tax Department processes your return, it automatically verifies all deductions, exemptions, and allowances against the information available in Form 16, Form 26AS, and other records. If the claims don’t match or seem inflated, the system issues a notice seeking clarification or proof.
Common deduction-related errors
Claiming Section 80C deductions for investments that were not made within the financial year.
Declaring HRA (House Rent Allowance) even when you live in your own house or haven’t paid rent.
Including medical insurance premiums under Section 80D for relatives who aren’t eligible dependents.
Claiming home loan interest under Section 24(b) without providing the loan certificate.
Duplicating claims, for example, both spouses claiming the same rent payment or school fees.
Example
Ravi claimed ₹1.5 lakh under Section 80C for ELSS investments. However, when the department cross-checked his bank statements, it found that the investment was made in April, which falls in the next financial year. A notice under Section 143(2) was issued, asking Ravi to submit valid proof of investment for the relevant year or revise his return.
Why this happens
Most deductions are claimed based on estimated figures or verbal confirmations from employers or financial advisors. If you don’t maintain proper receipts, rent agreements, or insurance premium proofs, your claim can get flagged during automated verification.
How to fix it
Recheck the eligibility of every deduction claimed in your ITR.
Gather supporting documents, rent receipts, premium receipts, investment proofs, or loan interest certificates.
If the claim was incorrect, file a revised return removing the ineligible deduction.
If your claim is genuine, respond to the notice online with proper proofs uploaded under the “e-Proceedings” section.
Applicable Section
Section 143(2): Used when your return is picked for detailed scrutiny to verify claims or deductions.
Investments Made in the Name of Spouse
Sometimes taxpayers invest or purchase assets in their spouse’s name, assuming it will reduce their tax liability. While it may seem harmless, the Income Tax Department closely monitors such transactions. If the investment was funded using your income, the earnings from it are still considered your taxable income under the clubbing provisions of Section 64(1) of the Income Tax Act, 1961.
When the department detects such transactions in your Annual Information Statement (AIS) or bank records, but doesn’t find matching disclosures in your Income Tax Return (ITR), it may issue a notice asking for clarification or proof of ownership.
Why this triggers a notice
You transferred funds to your spouse’s account and they invested it in FDs, mutual funds, or property.
The investment was shown under your spouse’s PAN, but the income (interest, rent, dividends) wasn’t included in your return.
The property purchase or investment appears in the AIS but not in your ITR because it’s registered in your spouse’s name.
The department doesn’t treat such transactions as tax evasion by default, it simply wants to confirm whether the income arising from those assets has been correctly reported under the right taxpayer.
Example
Amit transferred ₹8 lakh to his wife’s bank account, and she used it to invest in mutual funds. The following year, her AIS reflected dividends and capital gains from those investments. Since Amit funded the investment, the income technically belongs to him. The department issued a notice under Section 142(1) asking why the income wasn’t included in Amit’s ITR.
How to handle this situation
Keep a clear trail, maintain transfer records showing who funded the investment.
Disclose clubbed income properly in your ITR under “Income from Other Sources” or the relevant head.
If your spouse genuinely invested using their own earnings, provide supporting documents (bank statements, salary credits, etc.) to establish ownership.
Respond to the notice within the given timeline through the e-Proceedings tab on the income-tax portal.
Key takeaway
Income earned on investments made with your money, even if in your spouse’s name, is taxable in your hands, not theirs. Proper disclosure avoids confusion and scrutiny.
High-Value or Unexplained Transactions
One of the most common reasons for receiving an Income Tax Notice is when you make a high-value transaction that doesn’t align with the income reported in your Income Tax Return (ITR). The Income Tax Department keeps a close watch on such activities through its data monitoring system called the Statement of Financial Transactions (SFT), which is reported by banks, mutual fund houses, registrars, and other financial institutions.
These reports help the department identify transactions that appear unusually large compared to your declared income or tax filings. If the system finds a mismatch or cannot trace the source of funds, it can issue a notice under Section 133(6) or 148A, asking for clarification or proof of how the money was received or spent.
What qualifies as a high-value transaction
Type of Transaction | Threshold Limit | Who Reports It |
Cash deposits or withdrawals in a savings account | Above ₹10 lakh per financial year | Bank |
Credit card bill payments | ₹1 lakh (cash) or ₹10 lakh (non-cash) | Bank |
Purchase or sale of property | ₹50 lakh or more | Registrar/Sub-Registrar |
Mutual fund, shares, or bonds investment | ₹10 lakh or more | Financial Institution |
Cash payment for fixed deposits | ₹10 lakh or more | Bank/Post Office |
If you’ve carried out any of these transactions but haven’t filed an ITR, or the transaction doesn’t reflect in your income records, the system automatically flags it.
Example
Rohit sold an old plot of land for ₹65 lakh and deposited the amount into his bank account. However, he didn’t declare this transaction in his ITR since he believed it was exempt. A few months later, he received a notice asking him to explain the source and taxability of the funds, as the property registrar had already reported the transaction under SFT.
Why this happens
The system doesn’t just look at your income, it looks at your spending, deposits, and investments too. When your financial activities seem inconsistent with your declared income, the department may reach out to confirm that the money came from a legitimate and taxed source.
How to handle it
Review your AIS and Form 26AS, high-value transactions are usually listed there.
Check your records to ensure these transactions have been correctly reported in your ITR.
If it was a genuine, non-taxable event (like a gift, loan repayment, or exempt capital gain), respond with documentary evidence such as bank statements, sale deeds, or gift declarations.
If you forgot to report it, file a revised or updated return immediately to stay compliant.
Random or Risk-Based Scrutiny
Sometimes, even if your Income Tax Return (ITR) is perfectly accurate, you might still receive an Income Tax Notice, not because of an error, but because your return has been picked for scrutiny.
The Income Tax Department uses advanced algorithms to select certain returns either randomly or based on risk parameters. The purpose is to ensure compliance and verify the correctness of details like income, deductions, and financial disclosures.
This process is part of the department’s data-driven monitoring, where returns are assessed by comparing them against trends, transaction patterns, and sectoral averages. For example, if your declared income seems too low compared to the volume of transactions reported under your PAN, your return might be shortlisted for review.
Types of scrutiny selection
Random Scrutiny: Returns are chosen at random each year to maintain transparency and ensure compliance across categories of taxpayers.
Risk-Based Scrutiny: Returns are flagged by the system due to unusual patterns, such as excessive deductions, large refunds claimed, or high-value transactions inconsistent with declared income.
Example
Sneha, a salaried employee, filed her ITR showing ₹10 lakh in annual income and claimed a ₹2.5 lakh refund. Her bank statements also reflected several large mutual fund investments. Though her filings were genuine, the system flagged her return under Section 143(2) for a routine verification to confirm the source of her investments and refund claim.
What happens when your return is picked for scrutiny
You’ll receive a notice under Section 143(2) or 142(1). The notice will specify the reason for selection and request documents, like Form 16, bank statements, investment proofs, or rent receipts, to substantiate the information declared in your ITR.
The scrutiny process is completely digital now. You don’t need to visit the tax office; all communication happens online through the Income Tax e-Proceedings portal.
How to respond effectively
Read the notice carefully to understand what information the department is asking for.
Prepare all relevant documents, salary slips, rent receipts, bank statements, investment proofs, etc.
Log in to the income tax portal → Pending Actions → e-Proceedings → upload your response and documents.
Always respond within the timeline mentioned in the notice to avoid further escalation.
If you’re unsure about what the department is asking, seek help from a qualified tax professional.
What To Do After You Receive an Income Tax Notice
Receiving an Income Tax Notice can be unsettling, but it’s important to remember that most notices are issued for clarification, not confrontation. What matters is how promptly and correctly you respond. The earlier you act, the smoother your resolution process will be.
Here’s a simple, step-by-step approach to handle any tax notice confidently.
Step 1 – Read and Understand the Notice
The first thing to do is not panic and read the notice carefully. Every notice has a clear structure that tells you exactly what the department needs from you. Look for these details right at the top:
Section of the Income Tax Act: This shows the purpose, whether it’s an intimation, scrutiny, defective return, or non-filing notice.
Assessment Year: Identifies which financial year the issue pertains to.
Reason for issue: Usually mentioned in the body of the notice, like mismatch in TDS, unreported income, or missing documents.
Response deadline: The notice always specifies how many days you have to reply.
Here’s what different notices mean:
Section 143(1): This is an intimation notice. It simply informs you about adjustments made during automated processing, like mismatched income or TDS differences.
Section 139(9): A defective return notice, meaning your ITR has missing or incorrect information and needs rectification.
Section 143(2): A scrutiny notice, issued when your return is selected for detailed examination.
Section 142(1): A query notice, usually requesting specific details or documents to verify your return.
Section 148A: Related to reassessment, issued when the department believes some income has escaped taxation.
Step 2 – Check the Basic Details
Before drafting a response, double-check the basics to ensure the notice is authentic and error-free.
Verify your personal details, name, PAN, address, and assessment year.
Confirm the issuing authority, it should be from an official domain or available under your account on the official portal.
Cross-check dates and amounts, ensure they match your filing records. Sometimes, older data may trigger notices for past years.
Step 3 – Find and Fix the Discrepancy
Once you confirm that the notice is legitimate, the next step is to identify what caused it. Most discrepancies fall into one of three categories:
Data mismatch: Differences between your ITR and records in Form 26AS, AIS, or TIS.
Missing documents: Supporting proofs for deductions, exemptions, or income sources not uploaded.
Filing errors: Incorrect ITR form, arithmetic errors, or missed verification.
How to resolve it efficiently
Download your ITR, AIS, and Form 26AS from the portal.
Compare them side by side to pinpoint mismatches.
If your return is correct, prepare a clear explanation and attach evidence, like Form 16, rent receipts, investment proofs, or bank statements.
If you made an error, file a revised return or a rectification request under Section 154, depending on the type of notice.
Submit your response online through e-Proceedings → Response → Attach Supporting Documents.
Make sure to respond within the given timeline (usually 15–30 days). Delays can lead to escalation or penalty proceedings.
How TaxBuddy Helps You Handle a Tax Notice
If you’ve received an Income Tax Notice, don’t stress about what to do next. Simply connect with a TaxBuddy expert, share your notice, and our team will help you understand the reason, prepare your response, and resolve the issue directly with the Income Tax Department.
Conclusion
Receiving an Income Tax Notice doesn’t always mean you’ve made a mistake. Most notices are simply requests for clarification, additional documents, or small corrections. What matters is that you read the notice carefully, understand the reason behind it, and respond within the given time frame.
If you’re unsure how to interpret the notice or what action to take, you don’t have to figure it out alone. Connect with a TaxBuddy expert, and our team will help you review the notice, explain the next steps, and prepare a proper response — saving you from penalties and unnecessary stress.
A calm, timely, and accurate response is the best way to close any tax notice smoothly.
Frequently Asked Questions (FAQs)
Q1. What is an Income Tax Notice and why is it issued?
An Income Tax Notice is a formal communication from the Income Tax Department under the Income Tax Act, 1961. It’s sent when the department needs clarification, finds mismatches in your Income Tax Return (ITR), or wants to verify certain transactions. Notices are also issued for scrutiny, reassessment, or simple intimation after ITR processing.
Q2. What are the common reasons for receiving an Income Tax Notice?
The most common reasons include:
Mismatch in TDS or income reported in your ITR and Form 26AS/AIS.
Non-filing or late filing of ITR.
Claiming incorrect deductions or exemptions.
Unexplained or high-value transactions.
Investments made in the name of spouse or family members.
Random selection for scrutiny under Section 143(2).
Q3. What should I do immediately after receiving a notice?
First, read the notice carefully to identify the section (such as 143(1), 139(9), or 142(1)) and the reason for the issue. Then, verify whether the notice is genuine using the Document Identification Number (DIN) on the official Income Tax portal. Once verified, assess whether it needs clarification, document submission, or a revised return.
Q4. How can I check if the notice is genuine?
Go to the Income Tax e-Filing Portal → Authenticate Notice/Order Issued by ITD. Enter the Document Identification Number (DIN) mentioned in the notice. If it’s genuine, the system will display the details. Never share personal or banking details over email or phone unless you’ve confirmed the notice’s authenticity.
Q5. What is the timeline to respond to a tax notice?
Each notice specifies a due date, generally ranging from 10 to 30 days. It’s crucial to reply within this period. Ignoring or delaying a response can result in penalties, disallowances, or scrutiny assessments. Always keep acknowledgement receipts of submissions made on the portal.
Q6. What happens if I ignore an Income Tax Notice?
If you ignore a notice, the Income Tax Department may proceed with a best judgment assessment under Section 144, where they calculate your income based on available data — often leading to additional tax demands, penalties, or legal consequences. It’s always better to respond, even if it’s just to explain your position.
Q7. How can I respond to a notice online?
Log in to the Income Tax e-Filing Portal → Pending Actions → e-Proceedings. Select the notice, click on “Submit Response”, and upload the explanation or required documents (like Form 16, rent receipts, or investment proofs). You can also file a rectification or revised return if needed.
Q8. What documents should I keep ready while responding?
It depends on the reason for the notice, but commonly required documents include:
Form 16 / Form 16A (for salary and TDS details)
Bank statements and AIS summary
Investment proofs (for Section 80C/80D claims)
Property documents (if applicable)
Capital gains statements from mutual funds or brokers
Rent receipts and rent agreements (for HRA claims)
Q9. Can I get multiple notices for the same financial year?
Yes, it’s possible. You may receive separate notices for different reasons — for instance, one under Section 143(1) for mismatch and another under Section 142(1) for non-filing or verification. Each notice should be treated separately, as they serve different purposes.
Q10. What is a scrutiny notice and how serious is it?
A scrutiny notice under Section 143(2) means your return has been selected for detailed verification. It doesn’t always indicate wrongdoing — it’s often routine. The department may ask for documents supporting your income, deductions, or transactions. As long as your filings are genuine, the process is straightforward.
Q11. Can TaxBuddy help me draft and submit my response?
Yes. Simply connect with a TaxBuddy expert, share the notice, and our team will:
Review the notice and identify the reason.
Tell you what documents are needed.
Help draft the correct response or revised return.
Guide you in uploading the reply on the Income Tax portal.
This ensures your response is complete, compliant, and submitted before the deadline.
Q12. How can I avoid getting income tax notices in the future?
Here are a few practical tips:
Always file your ITR on time and verify it.
Cross-check Form 26AS, AIS, and TIS before filing.
Report all income sources — salary, rent, capital gains, or interest.
Keep proofs of deductions and exemptions claimed.
Reconcile high-value transactions before submission.
Use trusted platforms like TaxBuddy, which automatically reviews your data for mismatches before filing.
