Received an Income Tax Notice? Here's Exactly What to Do

Income tax notices arrive in your registered email from donotreply@incometax.gov.in and in your e-Filing portal inbox. Under the current Faceless Assessment regime (Sections 144B, 144C), virtually all scrutiny and assessment proceedings happen electronically — no physical visits to the Income Tax Office for most taxpayers.

That is good news. All communication is on record, responses are submitted online, and the process is more transparent than the old manual system. But ignoring a notice — even an automated one — never makes it go away.

Before Responding: Verify the Notice Is Genuine

Every authentic income tax notice must carry a Document Identification Number (DIN) — mandatory since October 2019 (CBDT Circular 19/2019). Any notice without a DIN is not legally valid.

How to verify:

1. Go to incometax.gov.in
2. Click "Verify Notice/Order issued by ITD" on the homepage (no login needed)
3. Enter your PAN, document type, assessment year, and DIN

If the notice does not appear — it is fraudulent. Do not respond, do not share any OTPs or financial information. Report it to the Cyber Crime helpline at 1930.

Why AIS Is Behind Most Notices

The Annual Information Statement (AIS) — available in your portal under the AIS tab — aggregates transactions reported to the Income Tax Department by third parties: banks, mutual funds, stock exchanges, registrars, GST portal, and foreign remittance data (from AD banks under FEMA).

When your ITR does not explain income or transactions shown in AIS, the system auto-generates a mismatch. This is the root cause of most 143(1) demands and 148A inquiries today.

Action: Before filing ITR each year, download AIS and TIS (Taxpayer Information Summary). Submit feedback on any incorrect entries directly in the AIS portal — banks and institutions can update the reported data, which reduces notice risk.

The 8 Most Common Notice Types

1. Intimation under Section 143(1)

What it is: An automated processing summary sent by CPC Bengaluru after your return is processed. Technically an intimation, not a notice — but it must be acted on.

Common triggers:

• Arithmetic error in your tax computation
• TDS credit shown in 26AS / AIS does not match what you claimed in ITR
• Deduction claimed but not supported by the return data
• Mismatch between bank interest reported by bank and interest declared in ITR

Steps to take:

• Log in to portal → Pending Actions → Response to Outstanding Demand
• If demand is correct: Pay using e-Pay Tax. Link is in the intimation itself.
• If demand is incorrect: File an online rectification under Section 154 → Services → Rectification → Taxpayer Corrected Return or AO Data Correction, depending on the error type.
• Act within 30 days — delayed payment attracts interest at 1% per month under Section 220(2).

2. Notice under Section 139(9) — Defective Return

What it is: Your filed ITR has a technical defect that renders it incomplete or invalid.

Common triggers:

• Wrong ITR form used (e.g., ITR-1 filed when capital gains require ITR-2; ITR-2 filed when business income requires ITR-3)
• Tax payable but self-assessment tax not paid before filing
• Mandatory schedule left blank (foreign assets, exempt income, etc.)
• Aadhaar not linked or name mismatch between PAN and Aadhaar records

Steps to take:

• Log in → e-File → e-File an Income Tax Return → Response to 139(9) notice
• Submit corrected return within 15 days of the notice (extendable on request via the portal)
• Missing the deadline means your return is treated as if never filed — same consequence as non-filing, including penalty under Section 270A

3. Notice under Section 142(1) — Pre-Assessment Inquiry

What it is: The Faceless Assessment Unit requires specific documents or information before completing your assessment.

Common triggers:

• High-value entries in AIS not adequately explained in the return (property purchase, large FD, foreign remittance, stock transactions)
• GST turnover does not match income tax ITR turnover
• Return filed but supporting documents needed for verification

Steps to take:

• Respond through e-Proceedings on the portal within the specified time (typically 15–30 days, extendable)
• Upload the documents requested — bank statements, capital gain workings, purchase agreements, rent receipts, etc.
• Never ignore this notice — non-response leads to best-judgment assessment under Section 144, which is almost always unfavourable and difficult to challenge

4. Notice under Section 143(2) — Scrutiny Assessment (Faceless)

What it is: Your return has been selected for detailed faceless scrutiny. The Faceless Assessment Unit will examine your return in depth over several months.

How cases are selected (CASS):

• Mismatch between GST / TDS data and ITR income
• Unexplained AIS entries (cash deposits, high-value share transactions, property)
• Significant year-on-year jump in expenses or deductions
• Foreign assets or income not fully disclosed
• High-value cash withdrawals inconsistent with declared income

Steps to take:

• Engage a CA immediately — do not handle scrutiny responses yourself
• All submissions go through e-Proceedings as written responses with attached evidence
• Quality of written responses is critical — vague or incomplete responses result in additions
• You can request a personal hearing under Section 144B(7) — write to the NFAC; it is discretionary but granted in complex cases
• Complete the process within the time limits specified — there is no relaxation for late responses

5. Notice under Section 148A — Pre-Inquiry Before Reopening

What it is: Before reopening a completed assessment under Section 148, the AO must issue a show-cause notice under Section 148A(b), giving you a chance to respond.

What it means: The department has received information suggesting income escaped assessment in a prior year — from banks, registrars, foreign tax authorities, or informants.

Steps to take:

• Respond within the time specified (7–30 days typically)
• Demonstrate with evidence that income was fully disclosed and assessed
• If the AO proceeds despite your response, the Section 148 notice itself can be challenged in the High Court on jurisdictional grounds if proper procedure was not followed (as settled by the SC in Union of India vs. Ashish Agarwal)

6. Notice under Section 156 — Tax Demand

What it is: A formal demand for tax, interest, or penalty after an assessment order is passed.

Steps to take:

• If you agree: Pay within 30 days. Interest u/s 220(2) at 1% per month applies from the 31st day.
• If you disagree: File appeal before CIT(Appeals) within 30 days. Under current CBDT instructions, an automatic stay of 20% of the disputed demand is available while the appeal is pending — the balance 80% can be stayed by applying separately.

7. Notice under Section 270A — Penalty for Under-Reporting / Misreporting

What it is: The AO proposes to levy penalty on income additions made during assessment.

• Under-reporting (genuine error, difference of opinion): Penalty = 50% of tax on under-reported income
• Misreporting (suppression, fraud, false documents): Penalty = 200% of tax

Immunity option: Under Section 270AA, if you accept the assessment order (do not file appeal) and pay full tax and interest within one month of the order, you can apply for immunity from penalty and prosecution. This is often the pragmatic choice for small additions.

8. Intimation under Section 245 — Refund Set Off Against Demand

What it is: Your pending income tax refund has been adjusted against an existing outstanding demand from a prior year.

Steps to take:

• If the underlying demand is valid — accept the set-off; nothing further needed
• If the demand is disputed — file rectification or appeal for the demand, and request refund re-credit through Pending Actions → Response to Outstanding Demand on the portal

Non-Negotiable Rules When You Get Any Notice

1. Check your e-Filing portal dashboard regularly — Faceless notices go to the portal inbox. Email alerts are not always delivered reliably.
2. Every notice has a legal deadline — Note it the day you receive the notice. No extensions are granted routinely.
3. Do not file incomplete responses — A vague response to a 143(2) notice is almost worse than no response; it gives the AO grounds to make additions.
4. Submit AIS corrections for wrong data — If AIS shows income that is not yours (wrong PAN on TDS, duplicate reporting), correct it via AIS feedback before the notice escalates.
5. Carry-forward losses require timely filing — Business losses and capital losses can only be carried forward if ITR is filed before the due date (31 July for non-audit; 31 October for audit cases). Late filing forfeits this permanently.

At Mahesh Joshi & Associates, we handle the complete notice response process — drafting written submissions, uploading through e-Proceedings, and representing before CIT(A) or ITAT Mumbai/Pune. Contact us if you have received a notice.

CA Mahesh M. Joshi (ACA) is a practising Chartered Accountant in Wakad, Pune. This article reflects the current Income Tax Act and CBDT circulars. Individual circumstances vary — always consult your CA before responding to any notice.