As the September 15 deadline for filing Income Tax Returns (ITR) for the Financial Year 2024-25 (Assessment Year 2025-26) rapidly approaches, taxpayers face an unprecedented level of scrutiny from the Income Tax Department. With approximately 1.65 lakh cases already flagged for detailed assessment under Section 143(2), it’s clear that compliance checks are more rigorous than ever. To avoid the significant stress of a tax notice, which can lead to penalties or even prosecution, meticulous attention to detail in your ITR filing is paramount.
Here are the most common pitfalls that could land you a tax notice:
- Mismatches in Income and TDS/AIS/Form 26AS: This is a top trigger. The Income Tax Department’s advanced systems easily cross-reference the TDS (Tax Deducted at Source) reported in Form 26AS or your Annual Information Statement (AIS) with the income you declare. Any discrepancy, especially common for salaried individuals, freelancers, or those with multiple income sources, will likely result in a notice.
- Missing Out on All Income Streams: Many taxpayers inadvertently omit various sources of income. This includes interest earned from savings accounts or fixed deposits, rental income, capital gains from shares, mutual funds, property sales, and even burgeoning areas like cryptocurrency profits. Don’t forget foreign assets and income too. Even non-taxable income should be declared to ensure consistency.
- Selecting the Wrong ITR Form: Choosing an incorrect ITR form (e.g., using ITR-1 when you have capital gains that necessitate ITR-2) can lead to your return being deemed defective and trigger a notice.
- Claiming Deductions Without Proper Proof: While deductions under sections like 80C, 80D, and exemptions such as House Rent Allowance (HRA) are beneficial, they demand thorough and verifiable documentation. Unsubstantiated claims are a magnet for scrutiny and potential penalties.
- False Entries, Omissions, or Misreporting: The department is empowered by Section 271AAD to penalize any false entries, including forged documents or concealed accounts. This extends to making unsubstantiated claims for deductions. Be warned: deliberate misreporting—such as fabricating rent receipts or crypto transactions—can result in a penalty of up to 200% under Section 270A. Even underreporting income can lead to a 50% penalty.
- Sudden or Unexplained Drop in Income: If your reported income takes a significant dip compared to previous years, prepare to justify it. Unless you have legitimate documentation (like revised salary slips or evidence of job loss), it will raise red flags.
- High-Value Transactions Going Unreported: The tax authorities closely monitor significant financial activities. Failing to declare these is a major cause for concern:
- Cash deposits exceeding ₹10 lakh in a savings account.
- Credit card payments above ₹2 lakh.
- Large investments in mutual funds, bonds, stocks, property, and RBI bonds.
- Juggling Multiple Employers/Job Changes: If you switched jobs during the financial year, ensure you accurately consolidate and report income details from all your employers. Any oversight here can lead to mismatches and notices.
- Inaccurate Personal or Bank Details: Simple errors in your PAN, Aadhaar, bank account number, or IFSC code can not only delay your refund but also trigger a notice.
- Forgetting to E-verify Your ITR: After filing your ITR, it must be e-verified within 30 days to be considered a valid submission. Neglecting this step means your return is technically unfiled.
- Ignoring Previous Communications: It’s crucial to address any prior intimations or communications from the Income Tax Department promptly. Ignoring them can escalate matters and lead to more severe consequences.
What to Do if You Receive a Tax Notice:
- Verify Authenticity: Always double-check the PAN and Document Identification Number (DIN) to ensure the notice is legitimate.
- Understand the Basis: Carefully read the notice to ascertain the reason for its issuance and the specific legal section invoked (e.g., Section 143(2) for scrutiny assessment).
- Gather All Relevant Documents: Collect every piece of documentation and proof pertinent to the discrepancy or query mentioned in the notice.
- Seek Professional Guidance: For complex or significant notices, it is highly recommended to consult a tax professional or Chartered Accountant.
- Respond Promptly: Adhering to the stipulated timeframe for your response is critical to avoid further penalties or even legal action.
With increased vigilance from the Income Tax Department, a meticulous and honest approach to your ITR filing, coupled with post-filing vigilance, is your best defense against potential legal and financial troubles.