Misreported or Underreported Income Tax Notice: How TaxBuddy Helps Regularise

Misreported or underreported income often results in Income Tax notices triggered by mismatches between the filed return and data captured in AIS or Form 26AS. These discrepancies may involve salary from multiple employers, freelance receipts, capital gains, or TDS credits that do not align with reported figures. Such mismatches prompt notices under Sections 143(1), 142(1), or 148, requiring timely clarification. Penalties for misreporting can reach up to 200% of the tax difference, making early verification and correction essential. Digital platforms like TaxBuddy streamline this process by auto-fetching PAN-linked data, flagging mismatches, and guiding revised filings.

---

Table of Contents

• Understanding Misreported or Underreported Income Tax Notices

• Key Triggers Under the Income Tax Act 1961

• Legal Implications of Misreporting and Underreporting

• How to Regularise a Misreported or Underreported Income Tax Notice

• Step-by-Step Process to Correct Misreported Income

• How TaxBuddy Helps Regularise Misreported or Underreported Income

• Common Scenarios: Salary, Freelance Income, Capital Gains, and TDS Mismatches

• Mistakes to Avoid While Responding to a Misreported Income Notice

• Conclusion

• FAQs

---

Understanding Misreported or Underreported Income Tax Notices

Misreported or underreported income notices stem from inconsistencies between the return filed and information captured through AIS, Form 26AS, TIS, or statements submitted by employers, banks, brokers, and other reporting entities. These discrepancies trigger automated checks in the faceless processing system, prompting communications under Sections 143(1), 142(1), or 148. Misreporting may occur due to omissions, incorrect categorisation of income, or failure to include interest, dividends, capital gains, or employer-related entries. Once flagged, the notice requires a structured explanation supported by documentary evidence and, where necessary, correction through revised or updated returns depending on the phase of assessment.

Key Triggers Under the Income Tax Act 1961

Misreporting is detected when data reported by third parties conflicts with figures included in the return. Common triggers include salary income from multiple employers, unaccounted freelance receipts reflected in bank statements or AIS, capital gains recorded by depositories, or incorrect TDS claims that do not match Form 26AS. Foreign remittances, high-value transactions, and interest income reflected by banks also contribute to mismatches. These issues often arise due to oversight, incorrect selection of ITR forms, or delays in obtaining revised TDS certificates. Automated scrutiny ensures that such inconsistencies surface quickly, making timely review essential for accurate compliance.

Legal Implications of Misreporting and Underreporting

Under Sections 270A and 234 of the Income Tax Act, misreporting attracts severe financial consequences, including penalties up to 200% of the tax underpaid and interest charged monthly until correction. Notices under Sections 142(1) and 148 require formal responses, while failure to comply may result in a best judgment assessment under Section 144, leading to additional tax demands. In cases where the Assessing Officer identifies intentional concealment, prosecution may be invoked under Section 276C. The Budget 2025 updates further tightened faceless assessments, reducing leeway for prolonged delays or incomplete explanations, making timely rectification essential for avoiding escalated proceedings.

How to Regularise a Misreported or Underreported Income Tax Notice

Regularisation involves reviewing the notice, verifying mismatched entries, gathering relevant proof, and filing the appropriate return correction. When discrepancies arise from errors in the original return, revised returns under Section 139(5) allow corrections before assessment completion. If deadlines lapse, updated returns under Section 139(9A) permit correction albeit with additional fees. Once figures are corrected, a concise response clarifying the adjustments is submitted on the Income Tax portal. Efficient regularisation hinges on aligning the reported data with AIS, Form 26AS, and supporting documents while ensuring accurate categorisation of income and credits.

Step-by-Step Process to Correct Misreported Income

Verify the Notice: The correction process begins by downloading the notice from the Income Tax e-filing portal and reviewing it thoroughly. Each notice specifies the section under which it has been issued, the nature of the discrepancy, and the action required. Understanding whether the mismatch is related to TDS, salary, capital gains, interest income, or foreign remittances is crucial, as the response depends on the exact issue raised.

Match Data: Once the notice is understood, the next step is to reconcile the originally filed return with data reflected in AIS, Form 26AS, and TIS. These sources capture information submitted by employers, banks, brokers, mutual fund houses, and other reporting entities. A line-by-line comparison helps identify unreported entries such as interest from savings accounts, dividends, gains from securities trading, or salary from previous employers. This reconciliation forms the foundation for correcting the return.

Collect Supporting Proof: After identifying discrepancies, all relevant documents must be gathered. This includes Form 16 for salary, Form 16A for TDS, payslips, bank statements, invoices for freelance payments, broker contract notes for capital gains, and statements for foreign remittances. Each correction made in the revised or updated return should be backed by documentary evidence, ensuring that the Income Tax Department receives a clear, verifiable explanation during the response stage.

Choose the Correct ITR Form: Misreporting often arises from choosing an incorrect ITR form, especially when multiple income sources are involved. If income from capital gains, foreign assets, or business and profession exists, filing should shift from simpler forms like ITR-1 to more detailed forms such as ITR-2 or ITR-3. Selecting the appropriate form ensures that all income categories are captured accurately and the right schedules are available for proper classification.

File Revised or Updated Return: Corrections must be incorporated into a revised return under Section 139(5) if the assessment is still open. When the deadline for revised returns has passed, an updated return under Section 139(9A) may be used, albeit with an additional fee. Each income head, TDS entry, and deduction must be reviewed for accuracy. Using platforms such as TaxBuddy helps reduce manual errors, as automated checks highlight inconsistencies before the return is submitted.

Submit Response Online: After the corrected return is filed, a structured response must be submitted through the e-filing portal’s notice compliance section. This response should clearly explain the cause of the mismatch, the corrective action taken, and supporting documents that validate each correction. All attachments should be legible and relevant to the discrepancy being addressed to avoid further queries.

Pay Differential Tax: If the correction results in additional tax liability, the differential tax must be paid before submitting the response. This ensures that interest under Sections 234A, 234B, and 234C is minimised. Delays in tax payment may lead to further accrual of interest or additional notices, so timely payment is essential for clean closure of the issue.

Track Assessment: After submission, assessment status should be monitored regularly. The portal updates acknowledgment receipts, processing summaries, and follow-up communication. In some cases, the Assessing Officer may seek additional clarification. Tracking the case ensures that further requests are responded to promptly, preventing escalation into scrutiny or demand notices.

How TaxBuddy Helps Regularise Misreported or Underreported Income

TaxBuddy simplifies notice handling by auto-fetching PAN-linked data from AIS and Form 26AS to identify mismatches at a granular level. Its system checks TDS entries, salary components, securities transactions, and bank-reported interest, allowing early detection of discrepancies. Expert-assisted review ensures accurate categorisation of income, retrieval of missing documents, and preparation of revised or updated returns. The platform drafts appropriate responses to notices under Sections 143(1), 142(1), and 148, reducing the likelihood of follow-up queries or escalated assessments. With CA-guided support, TaxBuddy also advises on penalty exposure and optimises deductions available during correction.

Common Scenarios: Salary, Freelance Income, Capital Gains, and TDS Mismatches

Misreporting frequently arises from overlooked entries across different income categories. Salary discrepancies emerge when employment changes occur mid-year, leaving earlier employer data unreported. Freelance income mismatches stem from receipts credited to bank accounts but not declared or classified correctly under business income. Capital gains inconsistencies appear when broker-reported trades differ from manually calculated gains, especially from equities, mutual funds, or digital assets. TDS mismatches arise when the credit claimed exceeds the amount reflected in Form 26AS due to incorrect PAN reporting or outdated certificates. Each scenario requires document-backed clarification and, where necessary, reclassification through corrected returns.

Mistakes to Avoid While Responding to a Misreported Income Notice

Responses often fail due to assumptions rather than evidence-based clarification. Ignoring bank entries, AIS flags, or negative feedback loops from the portal increases the likelihood of further verification. Using incorrect ITR forms, misclassifying income, or claiming unsupported TDS credits also complicates resolution. Delayed filing of revised or updated returns reduces the chances of penalty relief. Uploading incomplete responses or failing to address each discrepancy individually leads to additional inquiries. Comprehensive reconciliation, timely correction, and structured explanations form the foundation of a clean resolution process.

Conclusion

Misreported or underreported income notices signal gaps between taxpayer-disclosed information and third-party data collected by the Income Tax Department. Early detection, accurate reconciliation, and prompt correction help prevent penalties, interest, and extended assessments. Platforms like TaxBuddy streamline this process through automated data matching, expert review, and guided filing support, reducing the risk of prolonged scrutiny. For anyone looking for assistance in tax filing, it is highly recommended to download the TaxBuddy mobile app for a simplified, secure, and hassle-free experience.

FAQs

Q. Does TaxBuddy offer both self-filing and expert-assisted plans for ITR filing, or only expert-assisted options? TaxBuddy supports both filing modes. The self-filing system is designed for straightforward return structures, offering automated checks, pre-filled data, and step-by-step guidance. For taxpayers handling multiple income sources, capital gains, foreign assets, or income mismatches, expert-assisted plans provide CA-reviewed filings, document-based scrutiny, and personalised support for notices, revised returns, and compliance requirements. This dual model ensures that simple and complex cases are handled with equal precision.

Q. Which is the best site to file ITR? The Income Tax Department portal remains the official filing platform, yet many taxpayers prefer feature-rich, guided platforms for accuracy and convenience. TaxBuddy is widely regarded as a leading choice due to its AI-driven validation, real-time mismatch detection, integrated AIS–26AS cross-verification, and expert-assisted review. Its ability to simplify complex tax situations, including notices and revised filings, positions it as one of the most reliable and user-friendly platforms for ITR filing.

Q. Where to file an income tax return? Income tax returns may be filed directly on the government’s e-filing portal or through authorised online filing platforms. TaxBuddy offers a seamless alternative by providing pre-filled data, automated error detection, deduction optimisation, intelligent form selection, and expert-assisted validation. The platform also allows smooth e-verification and real-time tracking, reducing the likelihood of errors that often trigger misreported or underreported income notices.

Q. Why do misreported or underreported income notices arise? Such notices are generated when discrepancies emerge between the reported income in the return and the information captured through AIS, Form 26AS, TIS, or third-party financial reporting. Common triggers include unreported salary from previous employers, freelance payments credited to bank accounts, capital gains reported by brokers, and TDS mismatches. These discrepancies may arise unintentionally due to oversight, incorrect form selection, or delays in receiving updated statements.

Q. What happens if a misreported income notice is ignored? Ignoring a notice can lead to escalation under the Income Tax Act. The system may initiate best judgment assessment under Section 144, followed by a formal tax demand under Section 156. Penalties for misreporting may reach up to 200% of the tax amount under Section 270A, while continued non-compliance may attract prosecution in serious cases. Interest continues to accumulate until the discrepancy is resolved.

Q. How is misreporting different from underreporting? Underreporting refers to incomplete or incorrect disclosure of income or credits, often arising from errors, oversight, or form mismatches. Misreporting, however, involves more serious inaccuracies, such as concealment, incorrect claims, fictitious expenses, or intentional omissions. The penalty structure reflects this difference—underreporting generally attracts penalties of 50% of the tax underpaid, while misreporting can lead to a 200% penalty.

Q. How can incorrect income reporting be corrected after receiving a notice? Correction typically requires filing a revised return under Section 139(5), provided the assessment is still open. If deadlines have passed, an updated return under Section 139(9A) may be filed with additional fees. The correction process includes reconciling AIS–26AS figures, gathering proof such as Form 16, salary slips, broker statements, or invoices, and ensuring accurate classification across income heads.

Q. How does TaxBuddy help in responding to misreported income notices? TaxBuddy automates large parts of the reconciliation process by analysing AIS, Form 26AS, and uploaded documents to identify mismatches quickly. Its CA-assisted workflow prepares revised or updated returns, drafts structured responses for Sections 143(1), 142(1), and 148 notices, and ensures that explanations align with the Department’s requirements. The platform also prevents recurring errors by validating income categories and TDS claims before resubmission.

Q. Can revised returns be filed multiple times to correct misreported figures? Yes. A revised return may be filed multiple times until the assessment is completed, as long as each revision addresses errors discovered after filing the original return. This flexibility allows corrections for overlooked interest income, salary mismatches, capital gains inconsistencies, or incorrect TDS claims. Once assessment is finalised, only updated returns may be used for correction, subject to additional charges.

Q. What documents are needed to correct a misreported or underreported income issue? Document requirements vary based on the discrepancy. Salary mismatches require Form 16 or payslips, while freelance income corrections call for invoices, bank statements, or GST returns. Capital gains discrepancies require broker contract notes and ledger statements. TDS mismatches often require Form 16A or updated certificates. These proofs establish the accuracy of disclosures during revised or updated filings.

Q. How much time is given to respond to a misreported income notice? Response timelines typically range from 15 to 30 days, depending on the notice type. Section 143(1) intimation discrepancies usually allow 30 days, while Section 142(1) and 148 notices provide a specified deadline mentioned in the communication. TaxBuddy sends reminders and assists with drafting responses well within stipulated timeframes to prevent automatic adjustments or escalations.

Q. Does using automated filing platforms like TaxBuddy reduce the chance of misreporting? Yes. Automation significantly reduces errors by validating figures against AIS, TIS, and Form 26AS before submission. TaxBuddy flags inconsistencies, recommends the correct ITR form, and ensures complete reporting across income categories. Expert-assisted plans add an additional layer of review, lowering the risk of penalties or notices for misreporting or underreporting.