Income Tax Notice to Salaried Employees: Reasons, Types & How to Respond?

Income tax notice is an official communication from the Income Tax Department, seeking clarification on certain potential mistakes, errors or intentional misreporting. Salaried individuals receive notices usually on deductions and exemptions, and income mismatches.

What is an Income Tax Notice?  

The Income Tax Department sends Income Tax Notices as formal intimation to the taxpayers, seeking clarification or action on discrepancies in your ITR. It’s crucial to address such notices promptly to avoid penalties or additional tax liability.

Reasons for Income Tax Notices to Salaried Employees 

Income Tax Notices can be issued for:

• Claiming Excess Deductions: Any excess or fraudulent claim of such deductions such as HRA will attract notice from the Income Tax Department.
• Mismatch of ITR with Form 26AS: If the income declared in your tax return does not match with that disclosed in Form 26AS, AIS, or TIS.
• Discrepancy in Income: If the income reported by the taxpayer does not match with the income reported by the employer. 
• Undisclosed Income: Failure to disclose any other income such as rent, interest, gifts, etc. 

Types of Income Tax Notices to Salaried Employees

The different types of Income Tax Notices that can be issued by the Income Tax Department are as follows:

• Income Tax Notice under Section 143(1) - Intimation after the preliminary assessment of the tax return filed. 
• Income Tax Notice under Section 142(1) - When you have already filed your return but the tax officer still needs clarification in the form of certain documents or information, and you have not yet filed your ITR and are being reminded to do so.  
• Income Tax Notice under Section 148 - If the income reported is less or tax has been underpaid.
• Income Tax Notice under Section 139(9) - Defective return notice.

How to Respond to Income Tax Notices? 

It is very important to respond appropriately to Income Tax Notices. Failure to reply or not replying to notices in the right manner will have consequences. You can follow the steps below while responding to Income Tax Notices:

Step 1: Examine the notice to understand the reason. Identify the concern and understand the actions required. Authenticate the notice. 

Step 2: Assemble all necessary documents such as your income tax returns, Form 16, Form  26AS, proof of investments, bank statements, and any other relevant documents. 

Step 3: Send your response within the notice deadline. Along with your response, include all necessary supporting documents.

Step 4: Make sure you receive an acknowledgement or any form of response from the tax department. 

How to Avoid Income Tax Notices to Salaried Employees?

Ensure the following points are considered to avoid an Income Tax Notice:

• Do not claim any excess deductions to get a refund or avoid tax.
• Income disclosed in the tax return should not be less than that reflecting in Form 26AS, AIS, or TIS.
• All foreign income and foreign assets should be disclosed in your tax return if any.
• Pay the tax, fine and penalty dues promptly and file your ITR within time.
• Income declared by you should not be less than that declared by your employer or any other source.

Conclusion

Income Tax Notices are to be dealt properly by the taxpayers and is something that is not to be ignored. There are various reasons for which different types of tax notices are issued. In this article, we have discussed the different types of tax notices, the reasons, and how they should be dealt with.