Got An I-T Notice? Don't Be An Ostrich!

If you disagree with the notice, be ready to explain.

Around 22,000 taxpayers have received intimation notices after the Income-Tax department identified discrepancies between the deductions claimed by taxpayers in their income-tax returns (ITRs) and the information available with the department.

These intimation notices have been sent under Section 143 (1) of the I-T Act and are for ITRs filed for the assessment year 2023-24.

Says Ankit Rajgarhia, principal associate, Karanjawala & Company, Advocates: "These discrepancies can occur when the deductions mentioned in the taxpayer's Form 16 (a salary certificate issued by the employer), Annual Information Statement (AIS), or the data the I-T Department has on record do not match."

Shivani Bhushan, senior associate at TAS Law, explains that these intimation notices have been sent to salaried individuals, high-net-worth individuals, Hindu Undivided Families (HUFs), trusts and so on.

These notices offer taxpayers an opportunity to clarify or rectify discrepancies.

Says Sandeep Bajaj, advocate, Supreme Court of India: "The primary objective of these notices is to ensure transparency and accuracy in tax filings while allowing taxpayers to resolve issues effectively."

The tax department means business.

According to Vipul Jai, partner, PSL Advocates and Solicitors, "The I-T department is taking a tough stance on tax evasion and non-compliance. Taxpayers should be aware of the risks involved in filing inaccurate or incomplete ITRs."

Discrepancies found

These intimation notices could have been issued for a variety of reasons.

One could be that the deductor and the taxpayer follow different methods of accounting.

Says Rubal Bansal Maini, partner, Luthra and Luthra Law Offices India: "The taxpayer may treat the income on which tax has been deducted as income for two or more different years, unlike the I-T department."

Also, there may have been a TDS mismatch because the deductor did not provide the correct Form 16 to the deductee, or the deductor deducted tax but did not deposit it with the I-T Department.

Says Bansal: "TDS mismatch is one of the most common problems taxpayers face."

Respond promptly

These are first intimation notices.

Bhushan says that if taxpayers fail to respond to them or fail to provide a clarification, the department will issue a demand notice.

If you agree

If the taxpayer concurs with the mentioned discrepancies, she has two options.

Says Bajaj: "File an updated return. One can submit an amended tax return that reflects the corrected information, encompassing any additional income, deductions, or pertinent details. And, secondly, pay the tax that is due."

Promptly settle the additional tax amount, including any interest that is applicable.

If you disagree

If you disagree with the notice, be ready to explain.

Says Prateek Goyall, partner at law firm MV Kini: "Respond with a comprehensive explanation backed by supporting documents. The I-T Department will review your response to make a fair assessment."

Adds Jai: "If no mistakes are found and the taxpayer does not agree with the adjustments made, she can file a rectification application under Section 154 (1)."

This section allows the assessing officer to rectify any mistakes or errors she may have made.

Don't be an ostrich

Failing to respond to the notice can have consequences.

Says Bhushan: "If there's no mismatch or no refund is payable, no action is needed in such cases. But in other cases, the taxpayer needs to respond to avoid a penalty."

Maini warns that no response could be treated as a response -- as an acceptance of the TDS mismatch by the taxpayer.

If the taxpayer fails to respond to an intimation notice within the time prescribed, then a demand notice will follow.

A demand notice can result in substantial penalties.

Says Goyall: "Non-compliance may also invalidate your tax return and cause loss of tax benefits."

The bottom line is that it is crucial to address these notices promptly and appropriately.

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Feature Presentation: Ashish Narsale/Rediff.com