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

Income Tax Notices are the official tool of communication of the Income Tax Authority. These notices are sent to intimate taxpayers about any discrepancies in their ITR, rectification of errors, clarification, or to seek additional information. In this article, we will take you through all the scenarios under which Income Tax Notices are issued and how to respond to such notices. 

What is an Income Tax Notice?  

An Income Tax Notice is an official communication from the Income Tax authority requiring further clarification or explanation regarding your ITR. Such notices are tools of communication that the authority uses to inform the taxpayer about any discrepancy or a particular issue that has been identified. It is to be noted that such notices should be addressed carefully and on a priority basis within time to avoid any penalties that could give rise to additional tax liability. 

Does a Salaried Person Get an Income Tax Notice?

Yes, Income Tax Notices can be issued to salaried employees for various reasons. The reason for which a notice can be issued to a salaried employee is outlined further below in this article.

Reasons for Income Tax Notices to Salaried Employees 

Income Tax Notices can be issued for the following various reasons:

• Claiming Excess Deductions: Apart from the standard deduction, there are other deductions like House Rent Allowance that a salaried individual can claim while filing ITR under the old regime. Any excess or fraudulent claim of such deductions will attract notice from the Income Tax Department.
• Mismatch of ITR with Form 26AS: You could receive a notice if the income declared in your tax return does not match with that disclosed in Form 26AS, AIS, or TIS.
• Non-disclosure of Foreign Income or Assets: A person who holds foreign assets or has foreign income is required to disclose it in his tax return. A notice can be issued if he fails to disclose the same in his tax return. 
• Discrepancy in Income: If the income reported by the taxpayer does not match with the income reported by the employer, banks, or other sources, then a notice will be issued. 
• Undisclosed Income: Failure to disclose any other income such as rent, interest, gifts, etc. by the taxpayer will also give rise to an Income Tax Notice. 
• Ignoring previous notices: Serious follow-up notices can be sent by the tax department when the taxpayer fails to respond to or address past notices issued to him. 
• Non-Filing of ITR: The Income Tax Department can send notices to taxpayers who have failed to file their ITR. This notice is usually for further clarification regarding failure to file the ITR.   

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:

• Notice under section 143(1): This is an intimation that the Income Tax department sends after the preliminary assessment of the tax return filed by the taxpayer. It intimates the taxpayer about whether any tax is owed or if they are eligible for a refund. 
• Notice under section 142(1): This notice may be sent out for two main reasons; either you have already filed your return but the tax officer still needs clarification in the form of certain documents or information, or you have not yet filed your ITR and are being reminded to do so.  
• Notice under section 148: If the income reported is less or tax has been underpaid, then a notice might be sent under this section. 
• Notice under section 139(9): If the ITR filed by the taxpayer is found to be defective  i.e., where there are inconsistencies or mistakes then a notice may be issued under this section.  
• Notice under section 143(2): This is a notice that intimates the taxpayer that his tax return has been selected for a detailed scrutiny to verify the accuracy of the tax return. 
• Notice under section 156: This is a Demand Notice. A notice under this section calls upon the taxpayer to pay the due amount such as penalty or tax dues that are  payable by the taxpayer. 
• Notice under section 245: This notice may be sent when the department intends to offset unpaid tax dues from previous assessment years against the refund of the current assessment year. 

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: Start by properly examining the notice to understand the reason for which it is issued. Identify the particular concern and understand the actions required to be taken. Make sure you authenticate the notice to verify its source and authenticity. 

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: Pay close attention to the response deadline specified in the notice. Replying within the timeline is crucial to prevent further penalties. 

Step 4: Along with your response, include all necessary supporting documents. Ensure these documents are well-organized to aid the reviewing officer's verification process. 

Step 5: It is advisable to consult a tax professional if you encounter any difficulties while replying to the notice. You can get in touch with ClearTax for expert advice. 

Step 6: If you are responding online, monitor the submission process closely to make sure you receive an acknowledgement or any form of response from the tax department. 

Step-7: Check your email, tax portal, and other communication mediums for any follow-up or additional notices from the tax department, and address them promptly. 

How to Avoid Income Tax Notices to Salaried Employees?

Remember the following points to avoid an Income Tax Notice:

• Make sure that you do not claim any excess deductions while filing your tax return to get a refund or avoid tax.
• Make sure that the income disclosed in the tax return is not less than that reflecting in Form 26AS, AIS, or TIS.
• Make sure to disclose all foreign income and foreign assets in your tax return if any.
• Make sure that all other incomes are disclosed appropriately.
• Do not forget to file your return on time.
• Make sure you pay the required tax amount, fines, penalties, or any other dues promptly within time.
• Make sure that the income declared by you is not 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.