As the Income Tax Department becomes increasingly technology-driven, taxpayers are seeing a rise in tax notices. Advanced data analytics, Artificial Intelligence (AI), and real-time information sharing between financial institutions and tax authorities have made it easier than ever to identify discrepancies in tax returns. While receiving a notice does not always indicate tax evasion, it often points to errors or omissions that could have been avoided.
What triggers tax notices
One of the most common triggers for tax notices is the mismatch between the income reported in the Income Tax Return (ITR) and the information available in the Annual Information Statement (AIS), Taxpayer Information Summary (TIS), or Form 26AS.
According to CA Ruchika Bhagat, MD, Neeraj Bhagat & Co., interest income from fixed deposits, dividend income, capital gains, or freelance earnings are frequently overlooked by taxpayers, leading to inconsistencies.
Another major reason is the incorrect claiming of deductions and exemptions.
“Taxpayers sometimes claim deductions under Sections 80C, 80D, or House Rent Allowance (HRA) without proper supporting documents. If the department seeks verification and adequate proof is not available, a notice may follow,” Bhagat said.
High-value financial transactions under scrutiny
High-value financial transactions are also under close scrutiny. Large cash deposits, significant credit card payments, property purchases, mutual fund investments, and foreign travel expenses are reported to the tax authorities by banks and other institutions. If these transactions do not align with the income declared in the return, taxpayers may be asked to explain the source of funds.
“Many individuals also fail to report income from all sources. It is common for salaried employees to disclose only their salary income while forgetting rental income, savings account interest, capital gains, or income from side businesses and freelancing activities. Such omissions can easily be detected through automated systems,” she highlighted.
Filing the wrong ITR form is another frequent mistake. Different categories of taxpayers are required to use different return forms based on their income sources. Using an incorrect form can result in the return being treated as defective and may attract departmental communication.
To avoid unnecessary notices, taxpayers should carefully reconcile their income with AIS, TIS, and Form 26AS, maintain proper documentation, disclose all sources of income, and file their returns accurately within the prescribed due dates.
