Income Tax Notice: 7 Reasons You Get One – and How to Respond (2026)

Last Updated on April 8, 2026 by Hemant Beniwal

“In this world nothing can be said to be certain, except death and taxes.” – Benjamin Franklin

He had filed his taxes every year for 19 years. Never missed a deadline. Never tried to hide income. So when the income tax notice arrived in his inbox at 8 AM on a Monday, his first reaction was panic. His second was confusion. His third was an hour on the phone with me.

It turned out to be a routine Section 143(1) intimation – a mismatch between Form 26AS and his declared income, caused by TDS that his previous employer had deposited under an old PAN. Resolved in a day. But the panic was real.

An income tax notice is not necessarily an accusation. Understanding why it arrives removes most of the fear.

7 Common Reasons for an Income Tax Notice

1. Incorrect Details in Your ITR

A mismatch in basic details – wrong PAN, name spelling different from PAN records, wrong assessment year selected, wrong bank account number – can trigger a notice under Section 139(9) (defective return). These are usually the easiest to resolve: correct the defect and refile within the time given in the notice.

2. Mismatch Between Actual and Declared Income

This is the most common reason. The ITD’s AIS (Annual Information Statement) and Form 26AS capture almost every financial transaction – salary TDS, bank interest, capital gains, dividend, and more. If your declared income does not match what is captured in these statements, an automated notice follows.

Common omissions that trigger notices: savings account interest (taxable even if TDS was deducted), capital gains from mutual fund redemptions, dividend income above Rs 5,000 from any company, freelance or consulting income deposited directly in bank accounts. Always cross-check your AIS before filing.

3. Paying Tax But Not Filing the Return

Many people assume that if TDS was deducted or advance tax was paid, they have “done their taxes.” They have not. Paying tax and filing returns are two separate legal obligations. Even if your employer deducted 100% of your tax, you must still file an ITR if your income crosses the basic exemption limit.

Important change: the old requirement to submit ITRV physically within 120 days no longer applies for e-filed returns. Since 2022, e-verification via Aadhaar OTP or net banking must be completed within 30 days of filing. If not verified within 30 days, the return is treated as not filed.

4. High-Value Transactions Flagged Under SFT

Banks, registrars, mutual fund houses, and other financial institutions report high-value transactions to the ITD under the Statement of Financial Transactions (SFT) regime. Transactions reported include cash deposits of Rs 10 lakh or more in a year across savings accounts, credit card payments of Rs 1 lakh or more in cash or Rs 10 lakh or more in a year, purchase or sale of immovable property above Rs 30 lakh, purchase of mutual fund units, bonds, or shares above Rs 10 lakh in a year, and foreign exchange transactions above Rs 10 lakh. If these transactions are not reflected in your ITR, expect a notice.

5. TDS Discrepancies

Your employer, bank, or any payer who deducted TDS may have filed incorrect TDS returns – wrong PAN, wrong amount, or filed under the wrong quarter. This creates a mismatch between what is credited in your Form 26AS and what you declared. The solution is to contact the deductor and get the TDS return corrected, then respond to the notice with updated Form 26AS.

Also check: if you changed jobs during the year, the second employer may not have considered your income from the first employer while computing TDS. This results in under-deduction and a tax shortfall that can trigger a notice.

6. Unreported Interest Income

This catches many salaried taxpayers who focus only on Form 16. Interest income from savings accounts, recurring deposits, FDs, post office schemes, bonds, and even loan repayments from friends and family is taxable. Banks only deduct TDS above the threshold (Rs 40,000 for non-senior citizens, Rs 50,000 for senior citizens) – but you must declare all interest income regardless of TDS. The AIS now captures this data from banks directly.

7. Scrutiny or Survey – Not Always Your Fault

The ITD runs risk-based scrutiny assessments on a sample of returns. Being selected does not mean you did something wrong. It means your return met certain criteria – high deductions relative to income, specific industries with cash transactions, or simply random selection. Respond calmly with documentation. If you have nothing to hide, scrutiny is just paperwork.

NRI note: if you were a resident Indian in the previous financial year and became an NRI in the current year, the probability of receiving a notice is significantly higher. Ensure your residential status and DTAA applicability are correctly declared.

The Notice Response Framework – What Most Taxpayers Get Wrong

Most people either panic and do nothing, or panic and call the wrong person. Here is a clear framework:

Read the notice carefully. Identify which section of the Income Tax Act it is issued under. Section 143(1) is a routine intimation – usually resolved by agreement or correction. Section 148 (income escaping assessment) is serious and requires immediate CA involvement. Section 142(1) is an inquiry before assessment – respond with documents.

Match the discrepancy. Pull your AIS, Form 26AS, and ITR side by side. Identify the exact mismatch the notice is flagging. In most cases, you will spot the issue immediately.

Respond within the deadline. Every notice has a response deadline. Missing it means automatic penalty and interest accrual. If you need more time, most notices allow an extension request through the ITD portal.

Never ignore a notice. Ignoring leads to ex-parte assessment, higher demands, penalties up to 200% of tax, and in serious cases prosecution.

“A tax notice is a question, not a verdict. Answer the question clearly, with documentation, within the timeline. That is all it usually takes.”

– Hemant Beniwal, CFP, CTEP | Founder, RetireWise

Read next: 11 Unusual Ways to Save Tax in India – Including the Retirement Strategy Nobody Plans For

The ITD is now more connected than it has ever been. AIS captures transactions from banks, mutual funds, registrars, credit cards, and foreign exchange in one place. The era of income disappearing through the cracks is largely over. The right response is not fear – it is accuracy. File correctly, cross-check your AIS before every filing, and respond promptly when asked.

A notice responded to promptly costs you an afternoon. A notice ignored costs you far more.