Income tax notices create stress for taxpayers. Most notices come from common mistakes in return filing, mismatched details, or missed reporting of income. If you follow simple steps, you reduce the chances of receiving a notice. This article covers do’s and don’ts to help you stay compliant and avoid unnecessary scrutiny.
Why Income Tax Notices Are Issued
The Income Tax Department issues notices for several reasons:
- Mismatch in income details reported in your return and data available with the department (Form 26AS, AIS, TIS).
- Non-filing of return despite having taxable income.
- Incorrect claims of deductions or exemptions.
- Large transactions not reported, such as high-value deposits, investments, or property purchases.
- Late filing or non-payment of taxes.
- Suspicious or incomplete disclosures.
Do’s to Avoid Income Tax Notices
File Returns on Time
- File your income tax return before the due date.
- For individuals, the due date is usually July 31 unless extended by the government.
Report All Sources of Income
- Report salary, house property income, capital gains, business income, and other income.
- Include interest earned on savings accounts, fixed deposits, or recurring deposits.
- Report dividend income and income from foreign assets.
Match Details with Form 26AS, AIS, and TIS
- Reconcile your income and TDS details with Form 26AS.
- Check Annual Information Statement (AIS) for high-value transactions.
- Use Taxpayer Information Summary (TIS) to ensure accuracy.
Keep Documentation Ready
- Maintain salary slips, Form 16, interest certificates, investment proofs.
- Keep records of capital gains from shares or property.
Claim Deductions Correctly
- Use Section 80C for investments in PPF, ELSS, and life insurance (Complete guide to Section 80C).
- Claim health insurance under Section 80D (Section 80D benefits).
- Claim NPS contributions under Section 80CCD(1), 80CCD(1B), and 80CCD(2) (NPS tax benefits explained).
- Claim housing loan interest under Section 80EEA (Housing loan interest guide).
Report High-Value Transactions
- Report purchase of property above ₹30 lakh.
- Report cash deposits above ₹10 lakh in savings accounts.
- Report credit card payments above ₹1 lakh in cash or ₹10 lakh by other modes.
Pay Advance Tax and Self-Assessment Tax
- Pay advance tax if liability exceeds ₹10,000 in a financial year.
- Pay self-assessment tax before filing returns.
Use Correct ITR Form
- Select the correct ITR form based on your income type.
- Using the wrong form increases chances of a notice.
Don’ts to Avoid Income Tax Notices
Do Not Ignore Filing
- Even if TDS is deducted, you must file if your income exceeds exemption limits.
- Ignoring return filing attracts penalties and notices.
Do Not Misreport Deductions
- Avoid false or inflated claims under Section 80C, 80D, or other sections.
- Department cross-checks investment details with banks and insurers.
Do Not Hide Foreign Assets
- Mandatory to report foreign bank accounts, shares, or properties.
- Non-disclosure attracts penalties under the Black Money Act.
Do Not Miss Reporting Capital Gains
- Report short-term and long-term gains from shares, mutual funds, and property.
- Ensure correct indexation benefit claims.
Do Not Underreport Cash Income
- For self-employed or freelancers, report all cash receipts.
- Department tracks high-value cash deposits.
Do Not Delay Responses
- If you receive a notice, respond within the given time.
- Non-response escalates the issue.
Common Income Tax Notices
| Notice Section | Reason for Notice |
|---|---|
| Section 139(9) | Defective return |
| Section 143(1) | Adjustment or mismatch in return |
| Section 143(2) | Scrutiny assessment |
| Section 148 | Income escaped assessment |
| Section 156 | Demand notice for outstanding tax |
| Section 245 | Adjustment of refund against pending tax demand |
Practical Example
An individual earns ₹10,00,000 salary, ₹50,000 bank interest, and sells shares with ₹1,00,000 profit. If the person reports only salary and ignores bank interest and capital gains, AIS will show mismatch. The system automatically issues a notice. Accurate reporting prevents this.
Tips for Salaried Employees
- Cross-check Form 16 with Form 26AS.
- Report perquisites, reimbursements, and allowances correctly.
- Keep investment proofs for deductions.
Tips for Self-Employed and Freelancers
- Maintain books of accounts.
- Report professional receipts, even if received in cash.
- Claim expenses with proper invoices.
- Pay advance tax in quarterly installments.
Tips for Senior Citizens
- Report pension and interest income.
- Claim higher deduction under Section 80D for health insurance.
- Check eligibility for exemption on interest under Section 80TTB.
Final Thoughts
Most income tax notices are preventable. File accurate returns, report all income, and pay taxes on time. Keep your financial records transparent. Review your income details with Form 26AS, AIS, and TIS before filing. These steps reduce errors and help you avoid notices.
