Explainer: Income tax notices and what they mean

Look at various intimations and notices a taxpayer can receive under different sections under the income tax

Explainer: Income tax notices and what they mean

An email from the income tax (IT) department can make your heart skip a beat even if you are someone who pays all your taxes on time. However, there are many situations in which the IT department may send you a notice. It could be to confirm that the IT returns filed by you are being processed, or to notify you about a discrepancy and ask for clarificatory information. 

Routine notices often do not require a response. For example, the IT department might send you a reminder to file your tax returns on time. However, in case it suspects that you have understated your income or finds an error in your claim, a notice will be served that requires you to respond within the stipulated time. Failure to do so may result in penalties with additional interest. 

While it is true that any IT communication includes clear instructions on whether or not a response is expected, knowing about the different types of notices/intimations can help you stay on track with regard to your tax obligations. In this article, we shall review the main factors that can trigger a notification from the IT department, and how to respond to them.

Confirmation notice (Section 143-1)

This is usually sent as a courtesy when your tax return is being processed. No further action is required on your part unless stated otherwise. You could receive such a notice up to 12 months after the assessment period for which a tax return was filed. If the IT department notices, say, a calculation error or incorrect PAN, it may ask you to correct it through this notification.

Related: 5 Tax filing mistakes that can get you a tax notice 

Demand notice (Section 156)

As the name suggests, the IT department may ask you to pay a penalty, interest, or fine if it determines that you have not paid the due tax amount in full. This type of notice requires immediate attention; a delay could put you at risk of additional penalties or interest of up to 1% per month until the outstanding tax is settled. If you receive a demand notice, do ensure that the unpaid tax is paid within 30 days. Alternatively, you can file an appeal under Section 246, which gives you time to address the issue with the IT assessing officer (AO).

Inspection notice (Section 142-1 and 143-2)

An IT notice under Section 142-1 is applicable if you fail to file a tax return on time or don’t provide the documentary justification demanded by the IT department. This type of notice can be sent even after the assessment year has ended. If the taxpayer does not comply with the initial notice under Section 142-1, the AO can serve a follow-up notice under Section 143-2 of the IT Act. This type of notice represents an escalation and requires the taxpayer to respond in person or through an authorised representative. Note that if you receive an IT notice under Section 143-2, you have the option of submitting the required evidence online with the approval of the AO.

Show-cause notice (Section 148)

If the AO has reason to believe that a taxpayer is deliberately evading tax, they can issue a show-cause notice under Section 148 of the IT Act. This requires a response within 30 days or sooner, depending on the time frame mentioned. One has the right to request a clarification from the department as to the reasons for a show-cause notice, which the AO is required by law to provide. A defaulter can get such a notice up to 4 years after the end of the assessment period where the tax demand is less than Rs 1 lakh. However, the IT department can pursue a suspected case of tax evasion for up to 6 years if the amount in question exceeds Rs 1 lakh or relates to taxable investments abroad.

Related: Government leveraging data analytics to catch tax evaders

Adjustment of refund (Section 245)

The IT department can adjust an outstanding tax demand you might have against a pending refund owed to you. In this case, it sends you a notification under Section 245 informing you of the same. The time limit for accepting or declining the offer is 30 days, after which the department assumes that it has your consent for the adjustment of refund.

Last words

As with all things tax-related, responding quickly to requests for information can help you avoid hassles later. When in doubt, consult a professional accountant or tax advisor to ensure that any arrears owed are paid well before the deadline. Should you stick to the old tax regime or move to the new one? Read this premium article. 


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