Replying to an Income Tax Notice: How to Handle Different Types of Notices

It's not uncommon to make mistakes when filing your income tax returns (ITRs). The income tax department issues notices in these situations to correct the errors. Income tax letters are being sent out for a variety of reasons, and each one requires a different response. Income tax notices may arrive in the mail or by email, but you must reply to them according to a specific protocol. These notifications may arrive in your mail for a number of reasons, such as incomplete or delayed ITR filing, unpaid self-assessment taxes, withholding income disclosure, or just plain scrutiny. Let's examine each type of income tax notice in depth and discuss how to respond to it.

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Table of Contents

Potential Reasons for Receiving an Income Tax Notice

Types of Income Tax Notices

Alternatives to Respond to an Income Tax Demand Notice

Steps to Check and Reply to Income Tax Notices Online

Conclusion

Most Asked Questions

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Potential Reasons for Receiving an Income Tax Notice

You may continue to receive reminders from the Income Tax Department even after you have dutifully filed your income tax return and paid all of your taxes. Don't worry, though; you may receive an Income Tax Notice for a number of other reasons. Here are a few of them: 

• There may be a disparity in your salary or personal information. If such is the case, you will be sent a notification requesting that you provide information about your assets and income, both inside and outside of India.

• If the Income Tax Department believes you haven't recorded all of your income, you may also get a notification from them. You will need to gather all of your bank statements, pay cheques, invoices, and proof of income in such a situation.

• The Income Tax Department may become involved in any significant rise or fall in income levels. Should your bank account be filled with several high-value transactions, the Income Tax Department may send you a notification.

• The TDS stated on Form 26AS and Form 16A must match the amount stated when the ITR is filed. You may obtain an Income Tax notice in accordance with section 143 (1) if there is a discrepancy between the two amounts.

• If your ITR is examined, you may receive a notice under section 143(2). It can be the result of inaccuracies in the reporting. Make sure you respond as quickly as you can, or the department may take action against you.

• You may occasionally overlook it to include some interest income. But the Income Tax Department detects it right away and notifies you that any taxes owed will be subtracted from the claimed Income Tax Refund.

• You may receive a notification from the Income Tax Department for delayed ITR filing if you fail to file the ITR by the deadline.

• Under section 147 of the Income Tax Act, you may still receive a notice from the Income Tax Department even if you haven't dodged taxes this year.

Types of Income Tax Notices

Notices regarding income taxes can arrive in a variety of forms. The list of income tax notices is as follows: 

• Section 131: Under section 131, the Income Tax Officer may serve the assessee with a notice for an in-person meeting. The assessing officer may send notices to assessees requesting personal appearances if there is substantial evidence or cause to believe that taxes or unreported income are being evaded.

• Section 139(9): You may receive a notification from the income tax department regarding a "Defective Return." The AO or assessing officer will then provide you with a grace period of 15 days under section 139(9) to correct the ITR.

• Section 142(1): Under Section 142(1), the Income Tax authorities may request more information from the taxpayer or issue a notice requesting clarification on the filed ITR. If you fail to file the ITR by the deadline, you may also get a notification under this clause.

• Section 143(1): When an inaccurate claim or any other error in tax calculation is made, notice is provided to the assessee under Section 143(1). An overview of the information from the assessee's ITR is included in the notification.

• Sections 143(2) and (3): Following the selection of the assessee's ITR for examination or in-depth verification, notice is given under Section 143(2). The assessee receives a notice from the IT Department informing them that their records will be examined to verify the accuracy of the claims submitted. Additionally, section 143(3) governs the inspection.

• Section 148: You may obtain an Income Tax notice under section 148 if the Assessing Officer has good reason to believe that you have failed to record any income that is subject to tax, have underreported any income, or are attempting to evade taxes.

• Section 156: You may get a notification under section 156 from the Income Tax Department requesting that you pay any outstanding interest, taxes, or penalties. In most cases, the assessee has 30 days to pay the requested sum.

• Section 245: Assume that there is any outstanding tax debt from prior years. The Income Tax Department may then issue you a notification and deduct the previous obligations from your income tax refund for the current year.

Alternatives to Respond to an Income Tax Demand Notice

You have three choices on how to reply to the demand notice. The following is how you can reply to each choice:

Alternative 1: The Demand Is Accurate 

• This decision will result in the following pop-up screen message: "If you confirm the demand is correct, you cannot dispute it."

• Select "Submit" from the menu.

• There will be a success message displayed.

• You can get an adjustment for the outstanding amount and interest against any refund that is owed to you. If not, you have to promptly pay the demand.

Alternative 2: The Demand Is Only Partly Accurate

Two fields will appear for you to enter the right and wrong amounts. Select a justification for saying that the calculation is only partially accurate after inputting these figures. After that, you have to present proof to back up your claim. The following are possible explanations:

• Demand fulfilled in full: Give the Challan Identification Number (CIN), together with the amount, date of payment, BSR code, and challan serial number. Declare that you have paid by challan but do not have the CIN if the CIN is not available. Add the notes, amount, and date of payment.

• Revision or rectification reduces demand: Give the demand amount, the date of the rectification/revision order, and the identity of the jurisdictional ITO who made the corrections. Upload the ITO-passed effect order.

• Demand decreased by appeals court ruling, but appeal impact not yet apparent: Give the appellate authority's details, the order's reference number, and the date of the appeal.

• Petition for stay and appeal filed, stay accepted, or installment accepted: Give the appellate authority's name, the date the appeal was filed, and the address of the office where the stay petition was submitted. Upload a copy of the order in case a stay is approved.

• Correction/updated return submitted to CPC: Give the e-Filed acknowledgement number and the kind of filing. Attach a copy of the indemnification bond, TDS certificate, challan, and a letter demanding correction.

• Rectification submitted to the assessor: Give your opinions and the application date.

Alternative 3: Disagree with Demand

• Explain your reasoning for not agreeing with the department's call after selecting this option.

• Choose an objectionable cause from the list of options.

• Send in your answer. After that, a success screen including a transaction ID will appear.

• Click "View" on the "Response" page to review your response.

• Verify the answer type, date, serial number, and transaction ID.

Steps to Check and Reply to Income Tax Notices Online

You must reply to any notice you receive from the Income Tax in the following way using the official portal: 

Step 1: Go to incometaxfiling.gov.in, the e-filing portal, and enter your User ID and Password to log in.

Step 2: Select e-proceedings from the menu of pending choices. It consists of notifications sent to you along with an expected time of response. a schedule of all the steps included in the evaluation.

Step 3: Click on the email's provided links. Every message pertaining to the proceedings will be visible.

Step 4: After viewing the notice, click "Submit response." for each email that asks you to reply, under the 'Response' tab. You can choose between a "partial response" and a "full response," depending on the requirements.

Step 5: View the received notice and select "Submit Response."

Step 6: In the textbox next to the response/remarks, type a summary of your response in no more than 4000 words.

Step 7: To provide as proof, upload a copy of the cover letter and any appendices.

Step 8: To attest to the accuracy of all the information you have supplied, tick the box.

Step 9: Finally, you must click "Yes" after e-verifying your identity with a digital signature.

Conclusion

The way the Indian IT department handles notifications, tax demands, and notifications has changed dramatically. It is no longer necessary for you to go meet your jurisdiction's tax officer in order to provide or request clarification on your tax assessment. These days, every transaction is digitally completed and "faceless." But it's crucial to carefully reply to any notice within the allotted period. This helps you keep a spotless record and stay safe from notices and penalties for non-compliance to the Income Tax guidelines.

FAQ

Q1. What should you do if you receive a tax notice?

You can reply to any tax notification online at www.incometaxfiling.gov.in, the tax filing website. With every tax notification, there is a particular procedure that needs to be followed. When you receive an email like this, go to "My Account" and access your income tax account. You may check the progress of your demand and reimbursement here.

Q2. How do I reply to a wrong Income tax demand notice?

Open the e-filing portal and log in. Next, select "Pending Actions" and address any unfulfilled requests. The status of any outstanding demands will be pending payment or answer.

Q3. What happens if I do reply to an income tax notice within the stipulated timeline?

The income tax department will submit your case to a field assessing officer for a more in-depth inquiry if you do not reply to the department's compliance management cell by the deadline.

Q4. How can I rectify my ITR after submission?

Click e-filed returns under My Account. Click "Submit" after choosing "rectification status" from the drop-down menu.

Q5. What happens when I commit a mistake in ITR filing?

If you file an incorrect ITR, you can correct it by filing a revised ITR under section 139(5).

Q6. Does the Income Tax Department send notices for high-value transactions?

Yes, for high-value transactions, the Income Tax Department sends letters that require a response.

Q7. What is the format for responding to an income tax notice?

The Income Tax Department may send out several kinds of income tax letters for a variety of reasons. Depending on the notice's nature and intent, the reply's format may change.

Q8. What are the possibilities of getting an income tax notice?

If the taxpayer has more than two lakhs in bank deposits, more than two lakhs in mutual fund investments, more than two lakhs in sales or purchases of real estate, etc., the Income Tax Department has to be informed. You may receive a notification from the Income Tax Department if it is not reported.