The Income Tax Department has reportedly sent notices to 22,000 taxpayers, including high-net-worth individuals, salaried individuals, and trusts, for discrepancies in their deductions when compared to the information on their Form 16 or Annual Information Statement (AIS). These notices pertain to tax returns filed for the assessment year 2023-24.

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The department initiated this action after discovering disparities exceeding Rs 50,000 between the claimed tax deductions in the returns and departmental statistics. Notably, approximately 12,000 notices were issued to salaried taxpayers, while 8,000 taxpayers who filed returns under the Hindu Undivided Family (HUF) segment, with income disparities exceeding Rs 50 lakh, received notices, according to Economic Times report.

Furthermore, the department extended notices to 900 high-net-worth individuals (HNIs) facing disparities of Rs 5 crore and above, along with 1,200 trusts and partnership firms where the disparities exceeded Rs 10 crore.

Why the discrepancy?

The deadline for filing ITR for financial year 2022-23 without penalty ended on July 31, 2023. Once ITR is submitted, the tax department checks the declarations and taxes paid to see if all these details match. If the taxes paid are found to be less than what the taxpayers owe or if the department finds out an error, they may issue an intimation/notice.

The root cause of these discrepancies often stems from salaried taxpayers failing to provide proof of investments made for claiming deductions under section 80C to their employers before the deadline. Consequently, employers deduct excess tax, which can be claimed as a refund during the income tax return (ITR) filing. However, since these deductions do not reflect in Form-16, disparities are flagged by the I-T department's scrutiny mechanisms.

Moreover, taxpayers may receive notices if they have claimed deductions under section 80G on donations that raise suspicion.

What taxpayers should do in case of receiving these intimation/notice?

For those who receive such intimation or notice, experts recommend the following steps:

1. Check the reason for receiving the notice and review the details of the return filed.

2. Examine the computation provided in the intimation letter.

3. Respond promptly through the e-filing portal, explaining any factual misconceptions in the discrepancies mentioned.

4. Ensure that the ITR details are accurate and aligned with the position.

5. Be aware that the time limit for responding to the intimation letter is 30 days from the date of receipt. Although, if the taxpayer fails to respond to the intimation letter, then the return is processed by the income tax department after making necessary adjustments u/s 143(1)(a) and without providing further opportunities.

Here are the steps to reply to different income tax notices (as compiled by Bankbazaar):

Step 1: Visit the income tax e-filing portal.

Step 2: Log in to the account using the PAN card and click on 'Continue'.

Step 3: Go to the ‘e-File’ menu and check for any notices in the account.

Step 4: When you click "Provide," you can view detailed notices and submit a response.

Step 5: Next, the assessee must choose one of the following options when responding to tax demands: demand is correct, disagree with demand, demand is partially correct, and demand is not correct but agree for adjustment.

Step 6: Submit and periodically check back to see if any brand-new follow-up notifications are asking for additional explanation.