How to Respond to Income Tax Notices Online

1. Step 1: Visit the income tax e-Filing Portal
2. Step 2: Log in to your account Using your PAN card and Click on 'Continue'
3. Step 3: Go to the ‘e-File’ menu and Check for any notices in your account.
4. Step 4: When you click "Provide," you can view detailed notices and submit a response.
5. Step 5: Next, The assessee must choose one of the following options when responding to tax demands: demand is correct, disagree with demand, demand is partially correct, and demand is not correct but agree for adjustment.
6. Step 6: Submit and periodically check back to see if any brand-new follow-up notifications are asking for additional explanation.

How to Respond to Income Tax Notice on Credit Card

Scenarios Under Which You May Receive Income Tax Notice

The following are the scenarios under which Income Tax Notice may be received by you:

1. Card used for purchase of service or product worth Rs.10 lakh
2. Credit card bill paid over an amount of Rs.1 lakh

How the IT Dept Tracks High-Value Transactions?

The following is the how IT Department track their high-value transactions:

1. High-value transactions must be reported by the bank's registrars, post offices, or companies to the Director of the IT Department.
2. Form 61A called ‘Statement of Financial Transaction’ is mandated to these authorities to intimate about the transactions.
3. The high value transactions are evaluated by the Investigation Wing of the IT Department

1. Form No. 26AS has been revised by the IT Department from Jun 01, 2020, to trace high value transactions, made either through Credit Card or any other mode.

Note: Details about high-value transactions are displayed in Part E of Form 26AS.

How to Avoid Getting an Income Tax Notice?

The following are some of the significant steps that should be taken to save yourself from Income Tax Notice:

1. Be careful to spend excess using a credit card to avoid Income Tax Notice

1. Depending on the data filled in the tax return decides whether Income Tax notice will be issued or not
2. Income Tax Notice can be avoided by filling tax return in time
3. In the financial year, credit card transaction should not cross Rs.2 lakh
4. The income details in the ITR should be at par with Form 26AS
5. Details of high-value transactions should be mentioned during ITR filling.

Major Types of Income Tax Notices

Let's examine each notice kind in more detail and determine how to respond to each. Since the Income tax notices are of various types the reply to each type should also be different.

Notice for Non-Filing of Income Tax Return

If you have filed ITR for one year and not filed in the following year, or you have performed high-value transactions and not filed an ITR, then you could get a notice from the I-T Department for non-filing of ITR. If you are a salaried individual with tax being deducted by the company, and you have failed to file the ITR, then you could get a notice from the I-T Department.

If you have received a mail from the Income Tax Department by post, then you need to reply to the authority that sent the notice, giving detailed reasons for not filing the ITR.

1. If you did not file ITR because your income was below the taxable limit, then mention this in the letter. However, as a best practice, it is better to file an ITR even if your income was below the limit, especially if you have filed returns in previous years.
2. Anyone performing financial transactions above a certain limit has to file an ITR. The I-T Department gets information about such high-value transactions through the Annual Information Return (AIR). The relevant high-value transactions in a fiscal year include:
   1. Cash deposit of Rs.10 lakh or more in a savings account
   2. Credit card bill payments of Rs.1 lakh or more (cash) and Rs.10 lakh and above (other than cash)
   3. Purchase of mutual funds worth Rs.10 lakh or more
   4. Buying or selling immovable property worth Rs.30 lakh or more
3. Even if you incurred a loss in these transactions or if any of it was a gift of any kind, an ITR needs to be filed. In your reply to the notice, you must specify the reasons you thought you didn't need to file an ITR. If you made the wrong assumption, then you may file the ITR if the deadline for the assessment year is not already over - in your reply, you can attach the ITR-V/acknowledgement.
   1. If there is no time to file a return, then you must attach with your reply a computation of the income and investments and prove that there is no tax due. If tax is due, you may have to pay penalty.
4. If you are a salaried person and your employer deducts TDS from your salary, then it does not mean that you are exempt from filing return. Tax is deducted from your income when your income exceeds the income tax limits, which means that you are liable to file income tax return irrespective of whether the tax has been deducted from your salary or not. If you are in time for filing the return, then you should file the ITR and attach the ITR-V/acknowledgement with your reply to the authority.
   1. If the deadline for filing ITR has passed, then you need to attach a calculation of your income and investments to prove that you have not evaded tax payment.

If you received the I-T notice on mail, then you can reply to it online. Log in to the Income Tax e-Filing website and go to the Compliance section and locate the notice. You can respond with one of the following replies available:

1. Return is filed
2. Return under preparation
3. Business has been closed
4. No taxable income
5. Others

Once the relevant option is chosen, go to 'Related Information Summary' and fill in the appropriate options.

Notice for Delayed ITR Filing

If you have not filed the Income Tax Return by July 31, you will get a notice on non-filing of ITR. You could get this notice within a year of the end of the assessment year for which return has not been filed. File your ITR as soon as possible and attach the ITR-V, or reply with 'Return under preparation'.

Notice for Non-Disclosure of Income

You can get a notice from the I-T Department for non-disclosure of income if you have not shown any income in your ITR. If TDS has been deducted and you have no income to show for it, or if the I-T Department has received information about income such as bank interest or income from shares and securities through the AIR, they will suspect you of hiding income sources and send you a notice.

1. Always remember to compare your ITR with Form 26AS before filing it.
2. File a revised return in case you accidentally omitted any income source which is mentioned in Form 26AS.
3. If the return-filing deadline is over, then you need to send the department a fresh calculation of your income and tax dues. If any tax is due to the government then you need to pay it along with the interest and penalty applicable, and a receipt or challan of the tax paid can be attached to your reply.

Notice for Tax Credit Mismatch

If the tax credit in the ITR and Form 26AS do not match, you are likely to receive a notice for tax credit mismatch. In this case, cross-check the tax credit details in your TDS and ITR with that in Form 26AS. Revise your ITR accordingly and file a revised version or a rectification. If there is any error in Form 26AS, you need to rectify it in the form first.

Notice for Non-Payment of Self Assessment Tax

If you have filed a return even when tax is due from you to the government, then the ITR you filed will be considered a defective return. In this case, make the tax payment as required and file a revised return.

Notice for Tax Evasion

Your taxable income will be understated if you made investments in your spouse's name but failed to take into account the income generated by those investments. The IT department considers this to be possible tax evasion and might issue a notice in accordance with section 143(2).

Notice for Adjustment of Refunds Against Outstanding Tax

Under section 245, the income tax department has the authority to set off any refunds against any tax liabilities owed by the assessee. To inform the assessee, an appropriate notification will be sent out.

Notice of Demand

A notice of demand will be issued under section 156 in the event that an order is made that requires the assessee to pay tax, interest, or penalties. The assessee has to pay the pertinent sum within the time frame given in the notice.

Notice Under Section 142(1)

This warning was given prior to the I-T Department looking into your tax payment. The agency requests information from the taxpayer regarding their income, investments, taxes paid, assets, and liabilities as part of its initial investigation. You can be required to provide tax and income information for both yourself and anyone else for whom you are legally obligated to pay taxes, such as a dependent or a decedent for whom you are the legal heir.

The Assessing Officer may opt not to review your case if he is pleased with the documents and information you have provided. Even if you believe the information sought has no bearing on you, Section 142(1) requires you answer to the notification; otherwise, you risk fines and maybe legal action. 

Notice Under Section 143(2)

This is a scrutiny notice that is often delivered following the delivery of a notice under to Section 142(1). This notice could reach you up to six months after the evaluation year's end. Once you receive this notice, your case has been selected for a thorough examination, and you must provide all pertinent financial documentation, including records of your income, investments, deductions and exemptions that you have taken advantage of, losses, etc.

You must respond to this letter as quickly as you can in order to prevent fines and prosecution. Before responding to this notice, it might be wiser to seek the advice of a tax specialist.

Notice Under Section 245

If you have requested a refund of the tax, you have already paid but there are outstanding debts in your name, Section 245 serves you with a notice. The department informs you of your requested reimbursement and any outstanding demands from prior years through this communication. The dues and refunds will be offset against one another if you don't reply to this message.

You might need to file a rectification or revision of return if there is any problem. If you have any corrections to make to the prior demands, you must respond with the measures you took to fix the inaccuracies in the prior ITRs and the justification for the return you are requesting.

Notice Under Section 139(9)

If there is an error in the ITR filed by you or any relevant income/investment proof has not been attached, the department will send you a notice under Section 139(9). You need to reply to this notice within 15 days or the return will be considered as not filed. If any rectification needs to be done, file a rectification request for the return or a revised return within the deadline. If the rectification or revision is done within the stipulated period, then the return will be considered as filed, but if you have missed the deadline for filing ITR for the given year then the return will be considered as not filed.

The first thing to remember when you get a notice from the Income Tax Department is to not panic. If you are not clear on how to respond, seek the help of a tax consultant. Be truthful in your replies and attach as many documental proofs as you can. If any ITR revisions need to be done, do it as soon as possible. It'll be easier to deal with Income Tax Notices if your original ITR is filed online, so move to online ITR filing as soon as you can.