Income Tax Notice

When the Income-tax department notices a discrepancy in the income tax of an individual or firm, it sends a notice to the defaulter. As income tax notices are of various types, it is advised to reply to each of the notices specifically.

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What is an income tax?

An income tax notice is a written document sent to a taxpayer by the Department of Income Tax, for intimating the taxpayer on an issue with his/her tax account. This is for various purposes, such as filing/non-filing of his/her income tax return, making the assessment or asking for other information, etc. When the income tax department sends a note, the taxpayer must act on the notice within a stipulated time.

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When does a person receive an income tax notice?

Error In TDS Calculation:

  • One of the most common problems that result in income tax notice, is TDS miscalculation. Often, an employer or deductor delays or makes a mistake while filing the TDS returns, which result in receiving an income tax notice.

The Disparity In ITR:

  • If the disparity is with the sums reported in the returns, then try to explain the difference.
  • Differences that occur because
    • The person has forgotten to report certain earnings like interest from FDs.
    • The person has reported a deduction under the wrong section.
    • The person has submitted incomplete details.

For Requesting Certain Documents:

  • The Income-tax department, sometimes, may require certain documentation for the tax return filed. Once you receive this request, enclose the various required documents without delay.

When Tax Returns Are Not Filed:

  • The notice can be served to remind the assessee, who forgot to file the ITR.
  • Rs 5000 penalty for the delayed tax filings. Similarly, 1% interest per month from the due date for the unpaid taxes.

Investments Made In Spouse Name:

  • Many individuals decide to buy assets in the name of their spouses, kids, or other close family members in the hope of tax evasion.
  • Assets, in this case, apply to investments of any kind, such as property, houses, fixed deposits, mutual funds, bonds, debentures, etc. Let's presume you buy mutual funds in the name of your wife. Under section 64 of the Income Tax Act, any income you earn from such mutual funds is also considered as your income and you are liable to pay the taxes.

Huge Value Transactions:

  • Huge value transactions must be communicated to the income tax department by the company.
  • It includes
  • Cash deposits to a bank account amounting to Rs 10 lakhs or more in one year
  • Transactions made through the credit card of Rs 2 lakhs or more
  • Investments in mutual funds for Rs 2 lakhs or more
  • Purchase of debentures for Rs 5 lakhs or more in one-year
  • Selling or purchasing the asset worth of Rs 30 lakhs or more

Failed To Disclose The Assets:

  • If the total assets owned by the assessee is more than the value of Rs 30 lakhs, then he /she is liable to pay the wealth tax at 1% of the total value of the asset.
  • Here, the asset includes land, house, car, jewelry, etc.

Benefits the Income-tax notice issued under section 143(1)

  • The income tax department performs a preliminary review of all returns submitted and informs taxpayers of the results of such preliminary assessment.
  • This evaluation includes mainly mathematical mistakes, internal contradictions, tax estimation, and tax payment verification.
  • Under Section 143(1), such communication to the taxpayer regarding the preliminary assessment is called an intimation.
  • The preliminary assessment is done by the Central Processing Unit (CPU), which is completely computerized and it doesn’t involve human intervention.
  • Once the return is filed by the taxpayer, the total income or loss will be computed by the computerized system and provides a comparison of the evaluation process.
  • The intimation notice under section 143(1) consists of two columns namely
  • As provided by the taxpayer in the return of the income.
  • As computed under section 143(1)

Here, this two-column shows the calculation done by both the taxpayer and IT department computing the total income and liabilities. And eventually, it shows who was liable.

  • Three kinds of intimation are served under intimation notice. They are

No Demand Or No Refund Notice:

This notice is generally served to the taxpayer when the income tax department finds no fault on the tax return filed by him/her. It is a mere intimation from the IT department that ITR is processed and stating that there was no tax demand and no refund.

Refund Notice:

If the assessee has paid more tax than the liability, then the refund notice will be served to the taxpayer stating that the excessive amount paid will be refunded to your bank account.

Demand Notice:

If the Income-tax department after the computation process has found any shortfall in your tax payment, then this demand notice will be issued and ask the taxpayer to pay the tax due within 30 days.

  • Most importantly, Section 143(1) intimation has to be sent within one year from the end of the financial year in which return is being filed. For eg: if the taxpayer has filed a return for the financial year 2017-18 in July 2018, intimation can be sent any time till 31 March 2020.

Checklist for Income Tax Notice

  • After receiving the intimation notice under section 143(1) of the income tax act, 1961, the taxpayer should make a reply within 30 days from the date of the notice served.
  • If you fail to respond within the prescribed time, then your ITR will be processed with necessary adjustments without providing any opportunity to you.
  • On receiving the notice, the taxpayer should cross-check the name, address, and PAN number mentioned in the notice.
  • Similarly, cross-check the assessment year mentioned, and verify the e-filing acknowledgment number.
  • Revised return can be filed only if you have made a mistake in the original ITR filing. When you opt to revise return, it must be filed within 15 days.
  • The rectification return can be filed only if you have found any fault or error in the order sent by the income tax department.
  • In the 2nd page of the notice issued, you can understand the reason for which the notice has been issued. It also shows the difference of income mentioned in the return filed, and Form 16/16A/26AS.
  • As the intimation notice is a computer-generated one, there is a possibility for miscalculation or misappropriation. So the taxpayer need not panic on receiving the notice.
  • In case, if the intimation notice demands the taxpayer to pay an additional tax amount i.e demand notice, then it is treated as a notice of demand u/s 156.
  • On receiving this notice of demand, the taxpayer must respond within 30 days, to avoid the 1% interest per month from the expiry of 30 days and penalty imposed by the Assessing Officer.

Procedure for responding to the notice served u/s 143(1)

Nowadays, the queries related to the income tax can be clarified online by visiting the official income tax department website.

The Finance Act, 2016, brought some changes to section 143(1) of the income tax act. Here, the scope of prima facie adjustments has expanded and added four clauses for making the adjustments. They are

  • Visit the official website of the income tax department and log on to your account using your credentials.
  • Now at the top of the menu click on the “e-Proceeding” option and select the “e-Assessment/ Proceedings.
  • Enter the PAN and corresponding assessment year and select the option of “prima facie adjustments u/s 143(1)(a).
  • Disallowance of deductions asserted under Sections 10AA, 80 IB, 80IC, 80ID, etc. when returns were furnished after the dates stated out in Section 139(1).
  • Disallowance of loss asserted if the return for the previous year for which the loss is calculated was furnished after the due dates referred to in paragraph 139(1) above.
  • Disallowance of those expenses that are reported in the audit report but are not taken into account when calculating the overall income in the return on income tax.
  • Adding income that existed in Form 26AS, Form 16A or Form 16 and was not included in the Income Tax Return when calculating the overall income.
  • After selecting the prima facie adjustments, a new screen will be appeared consisting of details like Reference ID, Notice section, date of notice issued, etc.
  • Now click on the Reference ID and the corresponding screen will be opened.
  • This screen shows the difference between the income as per the return filed and income as per the form 16/16A/26AS.
  • In the right corner of the screen, you will find a response column, where you can select the option of agreeing or disagree with the adjustments claimed by the IT department.
  • If you agree with the adjustments, then make the necessary modification in the return and revise it and also pay the additional amount.
  • In case, if you disagree with the adjustments, then enter the reason for disagreement by furnishing supporting documents. You should enter the
  • TAN- which is a TAN of the employer mentioned in Form 16 /16A /26AS.
  • Just enter the section under which the deduction is made. Ex: enter section 192, if you have made the deduction under a salary income.
  • Amount paid or credited by deductor - Check the Part-A of Form-16 to find out the amount.
  • In the Income / Gross Receipt as per return column - Enter your Income after taking the deductions into account.
  • Now enter the head of income in “Head of Income / Schedule under which reported in the return” column.
  • Now click on the tab “Reason”, where you can select the reasons from the list dropped down.
  • Justification Remarks-In this column, you can enter some relevant remarks about your salary or deductions. After you have entered this information, the supporting proofs relating to the difference presented need to be attached for eg-80C, 80D proofs, rent receipts, etc.
  • Finally, after clicking on the submit button, you will get an acknowledgment of the response you have made.

Procedure for responding to the demand notice served u/s 143(1)

Get Our Legal Assistance To Respond To The Income Tax Notice

When you receive an intimation notice about the outstanding tax demand, you can respond to it through the e-filing website of the IT department.

  • Visit the e-filing website of income tax and Log on to your account by entering the user ID and password.
  • Now click on the “e-file” tab and select the option “Respond to the outstanding tax demand” from the list dropped down.
  • An outstanding tax demand notice will be generated on the screen consisting of the assessment year, demand identification code, and section code.
  • Click on the' Submit' button in the comment column to apply your answers to the correct AY.
  • The assessee must choose one of the following options:
  • Demand is correct
  • Demand is partly correct
  • Disagree with Demand
  • Demand is incorrect but agrees to change.
  • From the above four options, choose the appropriate option depending upon your claim.

Documents required to issue an income tax notice

Certain documents should be furnished for supporting a claim against the intimation notice. They are

  • Interest certificates from banks, post offices, etc.
  • Form 16/ 16A / 26AS
  • Any tax saving investment proof.
  • Rent receipts
  • Proof of Deduction made under 80C.
  • Documentary proofs to claim deductions under section 80D.
  • Home loan statement from the bank and NBFC.
  • Capital gains
  • Salary slips
  • Bank account details, etc.

FAQs on Income Tax Notice

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Recent Updates

IT Department to eliminate physical interface between the taxpayer and the taxman

21-Jul-20: The IT Department has implemented the Faceless Assessment Scheme recently. This means the Income Tax assessees who have got scrutiny notices do not need to go visit any office or meet any official from now onwards. They can file their replies online.

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