When you get a tax notice…

Be prompt in responding, collate all documents and make a cover letter

With the Income-Tax department on a drive to increase compliance, notices are being sent to individuals for old dues, which will now be adjusted against pending refunds.

Of course, anyone who gets a notice starts panicking. But for all you know, your returns may have been picked for random scrutiny.

Importantly, don't ignore the notice. Non-compliance with the notice could lead to a penalty of Rs 10,000, apart from the tax and interest penalty. Provide all the documents to the assessing officer (AO) and things might get resolved.


Before you meet the AO, check for details like the permanent account number (PAN) in the notice. Sometimes, the name or address might be incorrect but the income-tax department identifies you through the PAN.

"Identify the reason for being served a notice. Typically, under section 143(1D), individuals get demand notices for discrepancy in the returns. At other times, it could be for mismatch in tax deducted at source (TDS) or income amount," says Vaibhav Sankla, director of Pune-based tax consultancy H&R Block.

If there is a refund claim and the case is selected for scrutiny under section 143(2), then the return may not be granted. Section 143(2) enables the AO to make a regular assessment after a detailed enquiry. Otherwise, an intimation under section 143 (1) is the proof of return processed as submitted.

Then, check the validity of the notice. Under section 143(3), a scrutiny notice has to be served in six months from the end of the financial year in which the return was filed. But, a notice under section 148 can also reopen five-six year old cases if the AO has enough reasons for it.

After collating all the information/documents, prepare a cover letter (make two copies) listing all the documents provided.

Ask for an acknowledgement on the copy of the letter. Preserve this as evidence of the documents given. In case of a notice under Section 143(2), where the details required are not specified, collate basic information, like bank statements, major expenses, income and loan details, say chartered accountants.

Such notices have the officer in-charge's details like name, designation, signature, office address and, most importantly, income tax ward/circle number. Now that such notices come electronically, it must have the Document Identification Number, available on each communication by the tax authorities.

Do remember to make copies of the demand notice, in case you lose it. Or, scan and store the document. The envelope that carries the notice is an important evidence and should be preserved. It has the Speed Post number and establishes when the notice was posted and served to you. This helps when you receive the notice late and can't respond within the validity period.

Chartered accountants suggest seeking professional help to better understand the demand in the notice and supporting it with proper documents. In case you have to appear before the AO, a professional can help you better prepare your responses.