Income tax scrutiny: Who could get a tax notice by June 30 and how to respond?

Since the deadline for filing income tax returns (ITRs) is still some time away, June 30 may not seem like an important date for taxpayers. However, for returns filed during FY 2025-26, this is the last date by which the income tax department can issue a scrutiny notice under Section 143(2).

A ‘scrutiny assessment’ is initiated when the tax department wants to verify certain details in a return, such as income reported, deductions claimed or specific transactions. Receiving such a notice does not necessarily mean the taxpayer has done anything wrong.

It simply means the tax department is seeking additional information before completing its assessment. Hence, taxpayers should carefully review the notice and be prepared to provide supporting documents and explanations as requested by the authority to avoid any consequences.

When do you receive a tax notice?

A notice under section 143(2) is issued when the assessing officer suspects discrepancies, minor or major, in a return filed by a taxpayer. Here are some situations wherein a notice can be issued:

• Mismatch between Form 26AS or AIS and the ITR filed.
• Turnover mentioned in GST records do not match with the amount as per tax audit report.
• Amount of deduction claimed is disproportionate to the level of income earned.
• High value transactions as per Form 26AS not disclosed in return of income.
• Property sale transactions as per records of the registrar not disclosed in the return of income.

In recent times, the income tax department also has access to numerous digital transactions carried out or related to the taxpayer. Through advanced data analytic techniques and artificial intelligence, suspicious returns are flagged and selected for detailed scrutiny, Cleartax noted in a blog post.

What to do if you find an error in your filed ITR?

If you spot a mistake in your ITR, whether it is a reporting mismatch or a wrong claim, don't assume a scrutiny notice will automatically follow.

The tax system allows taxpayers to fix errors on your own through options like filing an Updated Return (ITR-U), though you would have to pay additional tax costs and follow certain conditions. In many cases, correcting the return voluntarily is better than waiting for the department to flag it later.

What to do if you have already received a tax notice?

You may receive a scrutiny notice in the form of a PDF on registered email address. It will also be sent to the postal address. Another way of checking for a notice is by logging into your income tax portal.

If you received a notice by the I-T department, here's what you need to do next:

• Login to your income tax portal.
• Navigate to Worklist and then click on E proceedings.
• Choose the notice to respond, and click on ‘View Notice’
• Click on ‘Submit Response’.
• You can either select ‘Agree’ or ‘Disagree’

If you agree to the notice, you can upload the JSON file of ITR generated by offline utility and submit. However, if you disagree with the details, choose the reason for your decision and submit.

Once this entire process is followed, you will receive a successful submit dialogue box with the transaction number.

What happens if you do no respond?

Taxpayers are advised to not take income tax notices lightly or ignore them as they may face severe consequences if they do not respond to the department within the stipulated time period, according to Cleartax.

Such a defaulter may be subject to a penalty of ₹10,000 under Section 272A for each failure to respond. In some cases, the assessing officer can proceed with a best judgment assessment under Section 144 based on available information.

This can result in a higher taxable income being assumed, which can lead toa higher tax and penalty payable by the taxpayer, Cleartax noted. If you choose to dispute the higher tax demand, a minimum of 20% of the tax due must be paid before you file an appeal with higher authorities.

In more serious cases of non-compliance or deliberate misreporting, the matter may also escalate to prosecution, which can, if proven, lead to imprisonment.