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

Are you a salaried individual who filed your ITR before the due date but still received an Income Tax notice from the authority? Well, nothing to worry or be surprised about. 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.

What are the Reasons for Income Tax Notices?  

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

• Claimed Excess Deductions: Apart from 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. 

Types of Income Tax Notices

The different types of Income Tax Notices are as follows:

• Notice under section 143(1): This is an intimation that the Income Tax department sends after preliminary assessment of the tax return filed by the taxpayer. It intimates the taxpayer 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? 

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. 

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  this 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.

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 in order to avoid an Income Tax Notice:

• Make sure that you do not claim any excess deductions while filing your tax return in order to get a refund or avoid tax.
• Make sure that the income disclosed in the tax return is not less than that reflecting in 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 taxpayer and is something that is not to be ignored. There are various reasons for which different types of tax notices are issued and each tax notice is issued for a different reason. In this article we have discussed the different types of tax notices, the reasons and how they should be dealt with.