What is the story about?
Indian tax authorities issue income tax and GST notices to companies primarily when discrepancies emerge across filings, third-party data, and transaction records. These notices are often system-generated and seek clarifications or additional information rather than alleging wrongdoing.
What typically triggers tax notices for companies?
Mismatch with third-party transaction data
Companies may receive income tax notices when high-value transactions reported by banks, customers, or vendors do not align with disclosures made in income tax returns. These mismatches are identified through automated reconciliation with the Annual Information Statement (AIS).
Raghunandan Saraf, Founder and CEO of Saraf Furniture, said notices are commonly linked to filings done without validating third-party data reflected in AIS.
GST input tax credit (ITC) discrepancies
GST notices can be issued when input tax credit claimed in GSTR-3B does not match invoice data available in GSTR-2A or GSTR-2B. Such discrepancies may arise due to delayed filings by vendors, incorrect invoice details, or non-compliant suppliers.
Saraf said MSMEs are more exposed to ITC mismatches when vendor compliance is not monitored on a regular basis.
Non-alignment with e-invoicing requirements
For businesses covered under e-invoicing mandates, tax authorities may seek explanations if invoice data is not generated or reported in line with prescribed norms. These checks compare e-invoice records with GST returns and income disclosures.
Shashi Bhushan, Chairman of the Board at Stellar Innovations, said the lack of real-time integration between sales systems and tax reporting often leads to such inconsistencies.
Application of GST Rule 86B
Under Rule 86B, certain taxpayers are required to pay a minimum portion of their GST liability in cash. Notices may be issued if this rule is incorrectly applied or not complied with, particularly in cases involving high turnover.
TDS and payroll mismatches
Income tax notices may also be triggered by inconsistencies in tax deducted at source (TDS) filings, delayed deposits, or mismatches between payroll records and quarterly TDS returns. Automated systems reconcile employer filings with corresponding recipient data.
Filing without periodic reconciliations
Experts note that notices are more likely when returns are filed without regular reconciliations across GST, income tax, and accounting systems. Discrepancies that surface during post-filing checks can prompt system-based queries.
Bhushan said compliance gaps often emerge because filings are handled separately from core accounting and operational systems.
Are tax notices always penal in nature?
Tax professionals say many notices are clarification-oriented and allow taxpayers to respond with explanations or revised information. Penalties typically arise only when discrepancies remain unresolved or when statutory provisions are violated.
How companies approach compliance?
Industry executives say companies view tax compliance as an operational risk management function, focusing on periodic reviews, vendor tracking, and internal controls to minimise disputes during assessments.
What typically triggers tax notices for companies?
Mismatch with third-party transaction data
Companies may receive income tax notices when high-value transactions reported by banks, customers, or vendors do not align with disclosures made in income tax returns. These mismatches are identified through automated reconciliation with the Annual Information Statement (AIS).
Raghunandan Saraf, Founder and CEO of Saraf Furniture, said notices are commonly linked to filings done without validating third-party data reflected in AIS.
GST input tax credit (ITC) discrepancies
GST notices can be issued when input tax credit claimed in GSTR-3B does not match invoice data available in GSTR-2A or GSTR-2B. Such discrepancies may arise due to delayed filings by vendors, incorrect invoice details, or non-compliant suppliers.
Saraf said MSMEs are more exposed to ITC mismatches when vendor compliance is not monitored on a regular basis.
Non-alignment with e-invoicing requirements
For businesses covered under e-invoicing mandates, tax authorities may seek explanations if invoice data is not generated or reported in line with prescribed norms. These checks compare e-invoice records with GST returns and income disclosures.
Shashi Bhushan, Chairman of the Board at Stellar Innovations, said the lack of real-time integration between sales systems and tax reporting often leads to such inconsistencies.
Application of GST Rule 86B
Under Rule 86B, certain taxpayers are required to pay a minimum portion of their GST liability in cash. Notices may be issued if this rule is incorrectly applied or not complied with, particularly in cases involving high turnover.
TDS and payroll mismatches
Income tax notices may also be triggered by inconsistencies in tax deducted at source (TDS) filings, delayed deposits, or mismatches between payroll records and quarterly TDS returns. Automated systems reconcile employer filings with corresponding recipient data.
Filing without periodic reconciliations
Experts note that notices are more likely when returns are filed without regular reconciliations across GST, income tax, and accounting systems. Discrepancies that surface during post-filing checks can prompt system-based queries.
Bhushan said compliance gaps often emerge because filings are handled separately from core accounting and operational systems.
Are tax notices always penal in nature?
Tax professionals say many notices are clarification-oriented and allow taxpayers to respond with explanations or revised information. Penalties typically arise only when discrepancies remain unresolved or when statutory provisions are violated.
How companies approach compliance?
Industry executives say companies view tax compliance as an operational risk management function, focusing on periodic reviews, vendor tracking, and internal controls to minimise disputes during assessments.
