5 reasons why enterprises are getting notices in 2026

In India, GST and income tax notices have become a fact of life for businesses, rather than an exception. With GSTN processing 3 billion API calls every month, it is important for every CFO and tax team in India to understand the common reasons why registered taxpayers receive GST notices in 2026. Automated reconciliation engines, the new AIS framework and stricter e-invoicing rules are all contributing to the issue that even those enterprises that file returns correctly and on time are getting notices.

Key Takeaways

• AI tools created by GSTN, namely ADVAIT and BIFA, automatically generate risk profiles for all taxpayers for sending scrutiny notices.
• The most common source of GST notices is a mismatch of ITC in GSTR-2B and GSTR-3B.
• Under the Income Tax Act, 2025, AIS automatically matches the data from the banks, brokers and TDS deductors with your ITR.
• E-invoicing mistakes like missing IRN, incorrect GSTIN, and late upload of IRP are no longer minor errors, but they render the invoice invalid.
• The biggest overlooked risk: If your books and your tax filings are on systems that don't communicate, the same transaction could be wrongly reported.

5 Reasons for GST & Tax Notices in India in 2026

1. Vendor Non-Compliance Creating Downstream ITC Risk

In the 2026 Invoice Management System (IMS) enterprise, ITC is directly linked to vendor behaviour. Any invoice that does not get booked in GSTR-1 or tax deposited by the supplier will not be reflected in GSTR-2B, and thus, the buyer's ITC is not valid. The vendor isn't the defaulting party that is required to pay back, but the buyer is. 

GSTR-3B liability fields are pre-set and locked in the GSTR-1, limiting the manual work to adjust supplier defaults. A proactive vendor compliance monitoring, i.e., checking the filing status before the claim of ITC, is no longer a negotiation of the enterprises.

ITC Mismatch Between GSTR-2B and GSTR-3B - DRC-01C Notices

The most frequent notices are for ITC claimed in GSTR-3B, which is greater than the ITC available in GSTR-2B. If this ITC difference is more than ₹ 1 lakh or 20% of GSTR-2B, whichever is less, it triggers an intimation for DRC-01C that is auto-generated by the system under Rule 88D of CGST Rules. 

The 7-day time limit is imposed for businesses to respond. Non-response leads to the non-filing of GSTR-1 and allows tax recovery without a Show Cause Order under Sections 73/74 of the CGST Act. Structural mismatches like IGST on imports and not under GSTR-2B, prior period ITC claims and transitional credits are valid but still result in notice. For a full compliance walkthrough, see Clear Tax’s guide on Rule 88D and DRC-01C.

2. ADVAIT & BIFA: AI Risk Profiling Triggering Scrutiny

GST Prime is an advanced analytical platform developed by the National Informatics Centre (NIC) specifically for central and state tax administrators in India. It serves as an intelligent bridge between the GST Common Portal, the E-way Bill System, and tax officers.

Its primary purpose is to help enforcement and intelligence bureaus monitor tax compliance, identify tax evaders, and prevent revenue leakage.

The Indian Income Tax Department has a computer-based system called Computer-Aided Scrutiny Selection (CASS) for identifying tax returns that require a comprehensive audit. It detects high-risk returns with substantial differences between income and expense, or unusual financial activity, without any human bias. When your return is chosen, an official notice will be issued under Section 143(2) to provide supporting financial information online through e-filing.

CBIC's project ADVAIT (Advanced Analytics in Indirect Taxes) leverages big data, machine learning, predictive analytics, and network analysis to create risk profiles for all indirect taxpayers. Together with BIFA (Business Intelligence & Fraud Analytics), it identifies anomalies in filing history, ITC spikes, turnover trends and sector benchmarks, even if filings appear correct, sending them out for scrutiny notices. 

At the Expert Session by Parul University on 24th March, 2026, the CBIC IRS Officer, Commissionerate (Vadodara) said: “GSTN utilises AI (BIFA, ADVAIT) capabilities to generate risk profiles from filing history, ITC mismatches, turnover trends, and sector benchmarks; real-time reconciliation across GSTR returns identifies anomalies.”

3. AIS/TIS Mismatch Causing Income Tax Notices

The Annual Information Statement (AIS) collects information from banks, brokers, mutual funds, property registrars, and TDS deductors. The Income Tax Act, 2025 (effective from April 2026) provides for an automatic intimation under section 143(1) in case of any mismatch in AIS data and income reported in ITR. The new Form 168 (from AY 2026-27) consolidates all AIS data, and the chances of undetected mismatches are reduced significantly. Representative triggers of common enterprises: unreported interest on fixed deposit, capital gains shown in AIS but not ITR, mismatch of TDS and high transactions in properties. 

One of the most common reasons for the issuance of income tax notices is TDS (Tax Deducted at Source), where every bank, employer, broker, or buyer that deducts tax on your income reports it directly to the Income Tax Department, which makes it visible in your AIS. In case of a mismatch in the TDS credited in the AIS with the declaration in ITR, the mismatch is flagged by the system, and an intimation is issued under Section 143(1). It is of utmost importance for enterprises to match Form 26AS and AIS TDS with their books before filing, as a single unreported transaction of TDS can lead to a notice.

• Always reconcile TDS credits in Form 26AS with the books of accounts before filing, else it will generate an automatic mismatch notice in 26AS.
• PAN Mismatches- If your vendor/deductor has quoted an incorrect PAN while making the TDS deposit, then the TDS will not be credited in your 26AS, and you may end up losing out on TDS claims and notices.
• TDS Return Errors- Errors in TDS returns (Form 24Q/26Q) filed by the deductor with incorrect details of challan or quoting wrong PAN directly lead to an AIS mismatch, which is issued as a notice to the deductee.

4. E-Invoicing Non-Compliance and IRN Errors

For businesses with an annual aggregate turnover exceeding ₹5 crore, e-invoices have to be generated through the IRP. It will be mandatory for all enterprises with a turnover of ₹10 crore and above to upload the invoices within 30 days, with no exceptions; the entered invoice would be treated as legally invalid, and ITC would not be provided to the buyer. 

Penalties shall be 100% of tax due or ₹10,000 per invoice (whichever is greater). Common mistakes include not having an IRN/QR code, incorrect GSTIN of the recipient, HSN mismatch, and not using e-invoicing for credit/debit notes. If the combined turnover is above ₹5 crore, all the GSTINs of the multi-GSTIN companies need to pay AATO at the PAN level. 

5. Your Books and Taxes do not Talk to Each Other

The same invoices, the same transactions processed through different systems that do not talk to each other, resulting in two different numbers, which trigger automatic mismatch notices from GSTN. The internal data hygiene problem and leading sources of enterprise GST notices in India today.

Common Patterns Observed in Tax Notices

Best Practices to Avoid Tax Notices

GST Compliance

• The GSTR-2B and GSTR-3B are to be reconciled monthly, before filing and not after. Automate to be able to raise vendor defaults in advance.
• IMS acceptance Actions for all eligible invoices should be completed before claiming ITC in GSTR-3B.
• Generate e-invoices at the time of billing, not batch upload at the end of the month (for ₹10 Cr+ entities).
• If multiple GSTINs are used for multiple purposes, and input services are shared between them, then it is mandatory to register as an ISD (Input Service Distributor) from April 2025. Check out our GST Changes from April 2026.
• Respond to every DRC-01C within 7 days; even a partial response is better than none to avoid a GSTR-1 blocking.

Income Tax Compliance

• Download and tally AIS- meet all ITR schedule 2-3 weeks before the due date.
• Provide feedback through the AIS portal on any incorrect or duplicate submission (otherwise considered as underreporting).
• Make sure all the TDS deductors have filed Form 26Q/24Q correctly before submitting ITR and verify the TDS credit in Form 26AS.

The reasons for GST and tax notices in India in 2026 are systemic and AI-driven, not arbitrary. Enterprises that treat compliance as a real-time, data-first function rather than a periodic filing exercise will significantly reduce notice frequency. Automate GSTR-2B reconciliation, monitor vendor compliance proactively, generate e-invoices at the point of billing, and reconcile AIS before every ITR filing.