Mismatch Between Your ITR, Form 26AS, and AIS
One of the most common triggers for an income tax notice is a discrepancy between the income you declare in your Income Tax Return (ITR) and the data available with the department in your Form 26AS and Annual Information Statement (AIS). Form 26AS is your tax passbook,
showing all Tax Deducted at Source (TDS) and Tax Collected at Source (TCS) linked to your PAN. The AIS is even more comprehensive, including details of high-value transactions, interest, dividends, and property sales. If the income you report doesn't align with the financial activities recorded in your AIS, an automated notice is likely. For instance, if your AIS shows interest income from a fixed deposit that you forgot to include in your ITR, the system will flag it.
Handling Large Volumes of Cash
The government has imposed strict limits on cash transactions to curb black money. Receiving ₹2 lakh or more from a single person in a day, for a single transaction, or for a single event is prohibited under Section 269ST of the Income Tax Act. Similarly, accepting a loan or deposit of ₹20,000 or more in cash is not allowed. For businesses, any cash expenditure over ₹10,000 in a single day to a single person is disallowed as a deduction, meaning you can't claim it as a business expense. Banks and other financial institutions are required to report high-value cash deposits, such as those aggregating to ₹10 lakh or more in a savings account in a financial year, to the tax authorities through the Statement of Financial Transactions (SFT).
High-Value Transactions Inconsistent with Declared Income
The Income Tax Department monitors high-value transactions to ensure they are consistent with a taxpayer's declared income. Transactions that cross certain thresholds are automatically reported by financial institutions, registrars, and companies. These include purchasing property valued at ₹30 lakh or more, making credit card payments exceeding ₹1 lakh in cash or ₹10 lakh via other modes, and investing over ₹10 lakh in mutual funds or shares. If your declared income doesn't seem to support such high levels of spending or investment, the department may issue a notice asking you to explain the source of funds.
TDS Mismatches and Incorrect Claims
A mismatch in TDS is a major red flag. This often happens when the TDS credit you claim in your ITR does not match the amount reflected in your Form 26AS. Such discrepancies can occur if your deductor (e.g., your employer or client) has made an error while filing their TDS return, such as quoting the wrong PAN. It can also happen if you have worked for two employers in a year and failed to combine the income and TDS from both jobs correctly in your return. If the TDS credit is not visible in Form 26AS, the Income Tax Department's system will likely reject your claim, leading to a tax demand and potential refund delays.
Non-Reporting of Foreign Assets or Income
With stricter global disclosure requirements, failing to report foreign income or overseas assets is a significant compliance risk. This includes income from foreign bank accounts, financial interests in any overseas entity, or ownership of foreign property. Taxpayers are required to furnish these details in Schedule FA of the ITR form. Any remittances made or received can also be tracked. Inaccurate or incomplete disclosure in this area can lead to serious consequences, including penalties under the Black Money Act.
