5 Major Reasons that may invite an Income Tax Notice

Here are 5 Major Reasons that may invite an Income Tax Notice: Mismatch in Income Reporting Mismatch in income reporting, where ITR data does not match with Form 26AS/AIS or Form 16, can invite an ITR Notice at the time of processing of the ITR itself. Some examples: Mismatch in Salary income reported in ITR, Form 26AS/AIS or Form 16 Mismatch in Deductions/Exemptions reported in ITR, Form 26AS/AIS or Form 16 Income Transactions coming in Form 26AS, but not shown in ITR and TDS Credit claimed. High Value Transactions High-value transactions, especially where your expenditure does not match with your ITR, can invite a Tax Notice. Some examples: High Value of cash Deposit/Withdrawal in your Bank Account A banking company or cooperative bank on which the banking regulation is enforced must report Cash deposits amounting to Rs. 10 lakh or above in more than one account (excluding the current account and time deposit) in a financial year. A banking company or cooperative bank to which the banking regulation is applicable must report Cash deposits or cash withdrawals (including through bearer’s cheque) totalling Rs. 50 lakh or more in a financial year, from one or more current accounts of a person. Large Credit Card spent: Payments above Rs. 1 lakh in cash or above Rs. 10 lakh in any other mode made to pay the credit card bill is reported by the banking company, cooperative bank or other financial institution in SFT with your PAN. High Cash Payments/ Receipts 1. Any person who is liable for audit u/s 44AB of the Act is required to report Receipt of cash payment of more than Rs. 2 lakh for the sale of goods or services of any kind. 2. Non Filing of ITR Non-filing of ITR can invite an income tax notice if it is found that your Income was more than the Slab limit. 3. Large transactions, like the purchase of House property and non-filing of ITR, generally invite Income Tax Notice u/s 147. It is usually advised, if you have purchased House Property or are planning to purchase one, please file your ITR, even if your income is below the slab limit. Claiming Fake Exemption/ Deductions to increase Income Tax Refund Generally, it is a very common practice among salaried taxpayers to claim fake exemptions/Deductions to increase the Income Tax Refund or reduce Tax Liability. With complete matching with Form 16 and automated scrutiny, this can land you in trouble and invite a tax notice. Random ITR Scrutiny u/s 143(2) Random ITR scrutiny u/s 143(2) on the basis of past data, flagged PAN or high value transactions as per the algorithm of the Income Tax Department can also take place. Received Income Tax Notice! What can happen? Summon u/s 133(6) for claiming exemptions or deductions in your ITR: Give a proper reply and submit all the relevant proof on time. File ITR-U and correct the excess exemptions or deductions claimed in your ITR. Scrutiny Notice u/s 143(2) or Income Escaping Notice u/s 147 You cannot file ITR-U now. You need to proceed legally by submitting the reply. Income Tax Officer can levy a Penalty of up to 200%. Filing ITR for 2024-25 Be very careful in ITR filing for the current year. Best to avoid any kind of fake claim or exemption Disclaimer: Views expressed above are the author’s own and do not reflect the publication’s views.

Income Tax Changes- Union Budget 2025

The Union Budget 2025 has introduced revised income tax slabs aimed at providing relief to taxpayers through lower rates and a simplified structure. However, the removal of deductions and exemptions raises concerns about its impact on the middle class’s investment habits and long-term financial goals. Reduced Incentives for Savings Under the old tax regime, deductions under Sections 80C, 80D, and 24(b) encouraged disciplined investments in instruments like PPF, EPF, life insurance, and home loans. The new tax regime eliminates these benefits, potentially reducing motivation for structured savings. Without these incentives, taxpayers may allocate more funds toward discretionary spending rather than securing their financial future. Impact on Future Financial Goals With the absence of tax-saving benefits, middle-class households may struggle to build sufficient retirement savings or plan effectively for major expenses like education and homeownership. The shift away from tax-linked investments could lead to lower financial security in the long run. Changing Investment Patterns While traditional tax-saving investments may decline, individuals might turn to alternative investment options like mutual funds, stocks, and real estate. However, without the push of tax benefits, the habit of systematic long-term investing may weaken. Conclusion The new tax regime simplifies taxation but shifts the responsibility of financial planning entirely onto individuals. Without structured incentives for investment, the middle class may face challenges in achieving long-term financial stability. To counteract this, policymakers may need to introduce alternative measures to encourage disciplined savings and secure future financial goals. Disclaimer: Views expressed above are the author’s own and do not reflect the publication’s views.