Your Guide to Income Tax Notices: 8 Alerts Every Taxpayer Should Know!

The income tax department may send you a tax notice if they find any errors in your tax return. These notices are a way for the tax authorities to alert you about mistakes that need to be corrected. Depending on what the issue is and how you respond, the tax officer might take further action.

It’s crucial to understand why you might get a tax notice and how to handle it. Knowing this will help you respond the right way and avoid any penalties.

Common Reasons for Receiving an Income Tax Notice

There are different types of income tax notices, but not all apply to everyone. If you’re a salaried person, you might get one of these common notices if the income tax department finds something wrong with your return.

In this guide, we explain the most important types of tax notices you could receive, along with why they happen and how to handle them.

What is a Section 143(1)(a) Tax Notice and How to Respond?

A Section 143(1)(a) Tax Notice is also called an “intimation notice.” It’s sent by the Income Tax Department after they process your income tax return (ITR). This notice will tell you whether your tax calculations are accepted or if there are any differences.

When is Section 143(1)(a) Tax Notice Sent?

This notice is usually sent when:

• The Income Tax Department has processed your ITR (either original or revised).
• There’s a mismatch between your calculations and theirs.

You will receive this notice within 9 months from the end of the financial year in which you filed your ITR. For example, if you filed for FY 2023-24 (Assessment Year 2024-25), the notice will be issued by December 31, 2025.

What Could Cause a Mismatch?

The Section 143(1)(a) Tax Notice may highlight a difference due to:

• Calculation mistakes on your part.
• Incorrect claims you made.
• Disallowance of certain expenses.
• Miscalculation of interest.
• Differences between your ITR and Form 26AS (your tax credit statement).

When Do You Need to Respond?

You need to respond only if the notice mentions a mismatch in your tax return and theirs.

• If the notice is about a tax refund or there is no mismatch, you don’t need to do anything.
• If there is a mismatch, you have 30 days to either accept or disagree with the proposed changes.

How to Respond to the Section 143(1)(a) Tax Notice?

• Agreeing with the Notice: If you accept the changes suggested by the tax department, you don’t need to take further action.
• Disagreeing with the Notice: If you believe the calculations are incorrect, you can respond by either providing additional documents or clarifying the discrepancies.

By understanding the Section 143(1)(a) tax notice and the steps to take, you can avoid unnecessary confusion and ensure your taxes are in order.

Understanding Section 139(9) Defective Income Tax Return Notice

If you receive a notice under Section 139(9), it means that the Income Tax Department has found an issue with your Income Tax Return (ITR). This usually happens when the information you provided is either incomplete, incorrect, or doesn’t match the records they have.

Common Reasons for Receiving a Defective ITR Notice

You might get a Section 139(9) notice for the following reasons:

• Claiming House Rent Allowance (HRA) in your return, but your salary details don’t show any HRA received.
• Reporting TDS (Tax Deducted at Source) for income like fixed deposit (FD) interest but failing to declare that interest as income.
• Claiming tax deductions under sections 80C, 80D, etc., but the information you’ve provided doesn’t match what your employer has submitted.

When Can a Section 139(9) Notice Be Issued?

The Income Tax Department can send you a defective return notice within 9 months after the end of the financial year in which you filed your return. For example, if you filed your ITR for the financial year 2023-24, the notice can be issued until December 31, 2025.

How to Respond to a Section 139(9) Notice

If you get a notice, you must fix the issues in your ITR within 15 days of receiving it (or the time mentioned in the notice). You can also ask for more time to fix the errors, as per the Income Tax Department rules.

Fixing a defective ITR on time can help you avoid penalties and ensure your tax filing is in order.

What is a Section 142(1) Tax Notice and How to Respond

A Section 142(1) tax notice is a notice sent by the Income Tax Department when you haven’t filed your Income Tax Return (ITR) as required under Section 139(1). This notice is also called an “inquiry before assessment notice.”

Why You Might Get a Section 142(1) Tax Notice

You could receive this notice if the tax department sees that you earned more than the basic exemption limit but didn’t file your ITR. It could also be issued if your Annual Information Statement (AIS) shows various sources of income, and you haven’t submitted the corresponding tax return.

How to Respond to a Section 142(1) Tax Notice

When you receive a Section 142(1) tax notice, you need to respond within the given timeframe, usually 15 days. In your response, you must explain why you didn’t file your ITR and provide the required details and documents to support your reasons.

When Can This Notice Be Issued?

There’s no fixed time limit for when this notice can be sent, so it can be issued at any time if the tax department believes you need to file a return.

Make sure you address the notice carefully to avoid penalties or further legal action.

What is a Section 143(2) Notice?

A Section 143(2) Notice is a formal letter sent by the tax department when they want to take a closer look at your income tax return (ITR). This process is called a “scrutiny assessment.” Essentially, the tax department wants to check if the information you’ve provided in your return, such as your income and deductions, is correct.

Why Do You Receive a Section 143(2) Notice?

You may get this notice because the tax authorities want to verify your claims and ensure your tax return is accurate. This is done under Section 143(3), which means the tax department will carefully examine your ITR to confirm everything is in order.

When Can This Notice Be Issued?

A Section 143(2) Notice must be sent within 3 months after the end of the financial year in which you filed your ITR. So, for example, if you filed your return for the financial year 2023-24, the notice can be sent by the end of September 2024.

How to Respond to a Section 143(2) Notice?

Once you receive this notice, you’ll usually have about 15 days to respond. The notice will tell you exactly how much time you have. You need to send any required documents and your response to the assessing officer who sent the notice.

If you receive this notice, don’t panic. Simply gather the required documents and respond within the time given.

What is a Section 148 Notice?

A Section 148 Notice is sent by the tax department when they believe that some of your income from a previous year hasn’t been properly assessed. This notice is issued when the Assessing Officer (AO) has evidence that suggests your income has been missed or incorrectly reported.

How Does It Work?

Before sending the Section 148 Notice, the tax department will first issue a Section 148A(b) Show Cause Notice. This is a notice asking you to explain why your case should not be re-assessed. 

You can respond by:

• Objecting to the reassessment if you believe it’s wrong.
• Asking for more information from the Assessing Officer (AO).

If you don’t respond, or after reviewing your response, the tax department will decide whether reassessment is needed, but only after getting approval from the relevant authority.

Why Did You Receive This Notice?

The Section 148 Notice is based on evidence suggesting that some of your income was not properly assessed in a previous year. This could include missed or incorrect income that should have been reported in your tax filings.

When Can a Section 148 Notice Be Issued?

• If your unassessed income is less than ₹50 lakh, the Section 148 Notice can be issued within 3 years and 3 months from the end of the relevant assessment year.
• If the unassessed income exceeds ₹50 lakh, reassessment can happen up to 5 years and 3 months from the end of the relevant assessment year.

How Long Do You Have to Respond?

You generally have 30 days to respond to a Section 148 Notice. The exact deadline will be mentioned in the notice itself.

Section 245 Notice: Offsetting demand against refund

In India, under Section 245 of the Income Tax Act, the Income Tax Department has the authority to offset any outstanding tax demand (amount owed) against any refund that is due to a taxpayer.

This means that if a taxpayer is entitled to a refund for a given assessment year, but they also have pending tax dues for a previous year, the government can adjust (or “offset”) the tax refund against the dues.

Purpose of Section 245 Notice:

Section 245 allows the Income Tax Department to automatically adjust any pending demand against the tax refund that is due to a taxpayer. This helps the department recover unpaid dues without the need for separate payments.

When is Section 245 Notice Issued?:

A Section 245 Notice is issued when the Income Tax Department determines that a taxpayer has a pending tax demand and is due for a refund for a subsequent year.

The notice informs the taxpayer that their refund will be adjusted against the outstanding demand.

How Does Offsetting Work?:

• If you have an outstanding demand for a previous assessment year and are eligible for a refund for the current year, the department will issue a Section 245 Notice and adjust the refund against the dues.
• The notice will provide details of the demand and how much of your tax refund will be utilized to settle the pending liability.

Types of Demands that Can Be Offset:

• Outstanding tax dues: These can include any unpaid tax from previous years.
• Penalty or interest dues: If you have outstanding penalties or interest for earlier assessments, these can be set off against the tax refund.

Taxpayer’s Right to Object:

• The taxpayer has the right to respond to a Section 245 Notice if they believe the offsetting is incorrect or if they have any valid reasons for why their refund should not be adjusted against the demand.
• If you believe there is an error in the demand or have paid the dues, you can contact the Income Tax Department and request a review or correction of the demand.

No Refunds in Case of Outstanding Demand:

If you have an outstanding tax demand and no response is provided to the Section 245 Notice, the department can simply adjust your tax refund against the pending liability, leaving you with no refund or a reduced refund amount.

Process of Issuance of Section 245 Notice

• Intimation of Refund: After the tax return is processed and the taxpayer is eligible for a refund, the Income Tax Department determines if there are any outstanding dues.
• Offsetting the Refund: The department checks for any pending demands for previous years. If such a demand exists, it issues a Section 245 Notice to the taxpayer indicating that their refund will be adjusted.
• Notice Issuance: The taxpayer receives a notice detailing the following:
  • The tax demand for which the refund is being adjusted.
  • The amount of refund that will be used to clear the outstanding dues.
  • The remaining balance (if any) that the taxpayer may receive after the adjustment.
• Taxpayer Response: If the taxpayer believes the demand is incorrect, they can file a response with the Income Tax Department, providing supporting documents and reasons why the demand should not be adjusted against the refund.
• Final Adjustment: Once the notice is issued and any objections are addressed, the refund is adjusted or offset accordingly.

Example of Section 245 Application:

Let’s say:

• Mr. X is due for a tax refund of ₹50,000 for Assessment Year 2023-24.
• However, Mr. X has an outstanding demand of ₹30,000 from Assessment Year 2021-22 due to non-payment of taxes.
• The Income Tax Department issues a Section 245 Notice informing Mr. X that the ₹30,000 outstanding demand will be adjusted against the ₹50,000 refund.
• Mr. X will receive a refund of ₹20,000 after the adjustment of ₹30,000 against the demand.

Taxpayer’s Responsibility:

• Taxpayers should be proactive in responding to any Section 245 Notice.
• Ensure that your previous year’s tax payments and returns are up-to-date to avoid automatic adjustments if you are entitled to a refund.
• Monitor any communications from the Income Tax Department, including notices or letters about pending demands or refund adjustments.

Consequences of Non-Response:

If you do not respond to a Section 245 Notice or fail to address any discrepancies regarding the outstanding demand, the department will proceed with offsetting your refund. This may leave you with no refund or a reduced amount, which could cause financial inconvenience.

Other Common Tax Notices You Might Receive

If you’re a taxpayer, you may receive different types of notices from the tax department. Here are some common ones explained in simple terms:

Section 154 Notice

If the tax department notices a mistake in your income tax return (ITR) after it’s been processed, they might send you a Section 154 notice. This notice is issued to correct any errors or mismatches found in your claims. Typically, this correction needs to happen within 4 years from the date the original order was issued.

Section 263 Notice

Sometimes, the Commissioner of Income Tax (CIT) may think that an official decision made by a lower-ranking officer is wrong or unfair. In such cases, they can issue a Section 263 notice. This is done to correct the decision if it harms the government’s interests. The notice must be sent within 12 months from the end of the year when the wrong order was made.

Section 131(1A Notice

If senior tax officials suspect that you might be hiding income or not reporting it correctly, they can issue a Section 131(1A notice. This notice allows them to investigate your financial records and ask you for explanations. They may even call you in for questioning or request additional documents. You usually have 30 days to respond, as mentioned in the notice itself.