Every year, thousands of taxpayers in India receive Income Tax Notices due to errors, mismatches, or non-compliance in their returns. With the Income Tax Department leveraging advanced AI-driven data monitoring systems, 2025 is expected to witness stricter scrutiny of taxpayers’ financial activities.
To avoid penalties, stress, and prolonged litigation, it is essential to understand the common reasons for receiving income tax notices and learn how to prevent them.
1. Mismatch Between ITR and Form 26AS / AIS
One of the most common reasons for an income tax notice is a mismatch between the details declared in the Income Tax Return (ITR) and those reflected in Form 26AS, AIS (Annual Information Statement), or TIS (Taxpayer Information Summary).
- Example: If TDS deducted by your employer or bank is not reported correctly in your ITR, the system will trigger a discrepancy.
How to Avoid:
- Always cross-check your income and TDS with Form 26AS, AIS, and TIS before filing your return.
- Ensure all bank interest, capital gains, and dividend incomes are reported.
2. Non-Disclosure of High-Value Transactions
The Income Tax Department closely monitors high-value transactions such as:
- Cash deposits above ₹10 lakh in savings accounts
- Credit card payments exceeding ₹1 lakh (cash) or ₹10 lakh (non-cash)
- Investments in mutual funds, shares, or bonds beyond threshold limits
- Purchase or sale of immovable property worth ₹30 lakh or more
How to Avoid:
- Report all high-value transactions accurately in your ITR.
- Keep supporting documents such as bank statements, investment proofs, and property agreements ready.
3. Claiming Incorrect Deductions or Exemptions
Many taxpayers claim ineligible or inflated deductions under Sections 80C, 80D, or HRA exemptions. This can trigger an income tax notice for under-reporting.
How to Avoid:
- Claim only those deductions that you are eligible for.
- Retain proof of investments, insurance premiums, medical bills, and rent receipts.
- Avoid last-minute tax planning that may lead to incorrect claims.
4. Not Reporting Income from All Sources
Failure to report secondary sources of income is a major red flag. These include:
- Freelancing or consultancy income
- Rental income from property
- Interest earned on fixed deposits or recurring deposits
- Capital gains from stock market or cryptocurrency transactions
How to Avoid:
- Disclose all sources of income, even if tax has already been deducted at source.
- Use Form 26AS and AIS to ensure no income is missed.
5. Delay in Filing or Non-Filing of ITR
Late filing or complete non-filing of ITR, despite having taxable income, attracts automatic notices under Section 139(9).
How to Avoid:
- File your ITR well before the due date to avoid penalties and notices.
- Even if your income is below taxable limits but you have high-value transactions, filing an ITR is advisable.
6. Cash Transactions in Violation of Rules
Large cash deposits or withdrawals from banks that exceed the prescribed limits can trigger scrutiny notices under the Income Tax Act.
How to Avoid:
- Use banking channels (NEFT, RTGS, UPI) for high-value transactions.
- Avoid splitting transactions to escape reporting — this is easily traceable.
7. Non-Disclosure of Foreign Assets and Income
For taxpayers holding foreign bank accounts, investments, or property, non-disclosure is treated as a serious offense under the Black Money Act.
How to Avoid:
- Report all foreign assets and income in your ITR under the “Schedule FA.”
- Ensure compliance with FEMA and RBI reporting requirements.
8. Incorrect PAN/Aadhaar Linking or TDS Errors
If your PAN and Aadhaar are not linked, or if TDS deducted has not been deposited by the deductor, you may receive an income tax notice.
How to Avoid:
- Ensure your PAN and Aadhaar are linked before filing ITR.
- Follow up with deductors (employers, banks, tenants) to confirm timely TDS deposit.
How to Respond If You Receive an Income Tax Notice
- Do not panic – most notices are for clarification or mismatch.
- Log in to the Income Tax e-Filing Portal and check the details of the notice.
- File a timely and accurate response with supporting documents.
- Consult a professional Chartered Accountant (CA) for guidance.
FAQs on Income Tax Notices in 2025
Q1. What is the most common reason for receiving an income tax notice?
Mismatch between ITR data and Form 26AS/AIS is the most common reason.
Q2. Can I ignore an income tax notice if the amount is small?
No. Even small discrepancies must be clarified. Ignoring a notice may lead to penalties.
Q3. How long does the Income Tax Department take to resolve a notice?
It depends on the complexity of the case. Simple mismatches may be resolved online within weeks, while complex cases may take months.
Q4. Can I respond to a notice without a CA?
Yes, but professional assistance ensures accuracy and avoids further scrutiny.
Q5. How can I prevent getting a notice in 2025?
By filing accurate ITRs, reporting all income, and avoiding discrepancies with Form 26AS/AIS.
Conclusion
With increasing digitization and stricter monitoring, taxpayers must exercise caution while filing ITRs in 2025. Most income tax notices arise due to errors, omissions, or non-disclosure of income. By staying compliant, maintaining accurate records, and consulting experts, taxpayers can easily avoid unnecessary notices and penalties. At PGACA, our team of Chartered Accountants assists with ITR filing, tax planning, compliance, and responding to tax notices. We ensure 100% accuracy and timely submissions so that you can focus on your financial goals without stress.