Income Tax News 2025: How to respond after receiving a notice from the Income Tax Department, taxpayers should know important things

News, Digital Desk- ( Income Tax Notice) There has been a huge increase in the number of income tax notices issued to taxpayers in India in recent months. These notices, which often relate to faulty returns or additional tax demands, cause anxiety and confusion among individual taxpayers. The main reason for this increase is the income tax department's increased focus on compliance and its efforts to identify discrepancies in financial reporting. There may be many reasons for this.

Filing wrong income tax return-

The most common reason for receiving an income tax notice is selecting the wrong tax-return form. The four forms for individuals are ITR 1, ITR 2, ITR 3 and ITR 4. 

Many taxpayers receiving income for the first time from capital gains or futures and options (F&O) trading mistakenly use ITR 1 or ITR 4 instead of ITR 2 or ITR 3. This leads to non-disclosure of such income, resulting in receiving faulty-return notices.

Mismatch with Form 26AS-

In June 2024, many taxpayers who filed income tax returns using data from Form 26AS are receiving notices due to mismatch in income. This happened because some taxpayers did not match their actual income with the details given in Form 26AS. 

At that time Form 26AS did not include the income of the last quarter (January to March) of FY 24. This oversight led to under-reporting of income and resulted in issuance of demand notices.

Non-taxable gifts-

Gifts received from specified relatives are exempt from income tax, and there is currently no provision to declare these non-taxable gifts in income tax forms. Nevertheless, some individuals have received demand notices for not paying tax on such gifts, highlighting a gap in the reporting process.

Revised Return Processed-

Some taxpayers who filed revised returns after identifying errors in their original filings have received notices based on their original returns. These notices are often generated because the revised return has not yet been processed or because an automated query requires further verification by the taxpayer.

How to respond to income tax notice-

Confirm the notice-

Verify the authenticity of the notice under the 'Pending Action' tab on the Income Tax Department's e-filing portal. This is particularly important as phishing scams are widespread, especially related to tax refunds.

Understand the types of notices-

Notices are issued under various sections of the Income Tax Act, and each requires a specific response. For example, section 139(9) deals with defective returns, while section 143(1) deals with processing errors. Identifying the type of notice helps determine the necessary action.

Submit the response on time-

Every tax notice has a specific time limit. For example, defective return notices usually have 15 days to rectify the same, while demand notices have 30 days. It is important to adhere to these time limits to avoid penalties, interest or legal action. Responding on time shows that you are following the rules and are willing to cooperate with tax authorities.

Rectify errors by filing revised returns-

If errors or omissions are highlighted in a notice, rectify them by filing a revised return or providing the required information. For example, a notice issued under section 139(9) for a defective return can be addressed by rectifying the errors and re-filing within the prescribed 15-day period.

Pay additional tax, if required-

On additional tax demand due to under-reported income or discrepancies in the tax notice, immediately calculate the correct amount and pay it along with interest. There is no need to file a revised return in such a case. You can directly respond to this demand through the 'Pending Actions' tab on the dashboard of the e-filing portal.