Essential IT Notice for Salaried Individuals

Essential IT Notice for Salaried Individuals

If you have filed your ITR for AY 2026-27 and received a notice from the Income Tax Department, the most important thing to understand is this: the notice is almost always generated by an automated system comparing your return against third-party data. It is not inherently a sign of wrongdoing. What matters is whether you respond correctly, within time, with the right documents. Ignore it, and a routine mismatch can escalate into a demand with interest and penalty that costs you far more than the original tax.

Why Salaried Taxpayers Receive IT Notices in AY 2026-27

The widespread belief that TDS deducted by your employer protects you from scrutiny is outdated. The Centralised Processing Centre (CPC), Bengaluru cross-matches your return data against at least five independent data streams before generating an intimation or notice.

The five data sources CPC compares against your ITR:

• Form 26AS — tax deducted and deposited by every deductor (employers, banks, tenants paying rent > Rs. 50,000/month)
• Annual Information Statement (AIS) — a far broader statement capturing interest, dividends, securities transactions, mutual fund redemptions, SFT data from banks, registrar transactions, and foreign remittances
• Taxpayer Information Summary (TIS) — a processed, aggregated view of AIS used for pre-filling
• Form 16 / 16A — uploaded directly by deductors to TRACES
• SFT (Statement of Financial Transactions) — filed by banks, brokers, mutual fund houses, registrars, and card companies for high-value transactions

Any line in your ITR that does not match the aggregate of these sources creates a flag. In FY 2025-26, the data coverage under SFT was extended to include more cooperative banks and NBFCs, meaning the net is wider than it has ever been.

The most common triggers for salaried employees:

• Savings bank interest credited monthly but disclosed only partially or under section 80TTA as "exempt" without reporting the gross amount in income
• Capital gains on mutual fund redemptions or listed shares sold through a broker — the broker files SFT, but many taxpayers miss Schedule CG
• Dividend from Indian companies credited directly to bank — now taxable in the hands of the shareholder and captured in AIS
• HRA exemption claimed where rent receipts are inconsistent with the landlord's PAN (where rent exceeds Rs. 1 lakh per year, landlord PAN is mandatory and verified)
• Employer ESOP or RSU income shown in Form 16 Part B but shares sold in the same year without reporting capital gains in the return

The Six Income Tax Notices Every Salaried Person Must Know

Understanding the section number on a notice tells you exactly what is being asked and how much time you have.

Section 139(9): Defective Return Notice

This notice is issued when your return is computationally inconsistent — for example, total income is blank, a mandatory schedule is missing, or TDS credit claimed exceeds what is available in Form 26AS. You have 15 days from the date of notice (extendable on request) to rectify and re-upload the corrected return. If you do not respond, the return is treated as not filed at all, which triggers late-filing consequences under section 234F.

Section 143(1): Intimation After Processing

This is the most common communication salaried taxpayers receive and is issued by CPC, Bengaluru, not by a human Assessing Officer. It tells you one of three things: your return has been processed and accepted as filed; your return has been processed but a demand has been raised due to a mismatch; or a refund has been determined. The intimation must be issued within nine months from the end of the financial year in which the return was filed. For a return filed in AY 2026-27 (i.e., during FY 2026-27), the intimation can arrive as late as 31 December 2027. If the intimation raises a demand, you must either pay it or file a rectification application under section 154 within 30 days, or challenge it under section 246A.

Section 142(1): Pre-Assessment Inquiry

This is a formal notice from your Jurisdictional Assessing Officer (JAO) asking you to produce books of account, documents, or a specific explanation before completing an assessment. Common triggers: large deductions claimed, significant refund, foreign income, or a high-value property transaction. Non-compliance attracts a penalty of Rs. 10,000 under section 271(1)(b) for each failure, plus the officer may proceed to best-judgement assessment under section 144.

Section 143(2): Scrutiny Notice

This notice selects your return for detailed scrutiny. It must be issued within three months from the end of the financial year in which the return was filed. For AY 2026-27 returns filed in FY 2026-27 (ending March 2027), the deadline is 30 June 2027. Respond via e-Proceedings with all supporting documents. Do not ignore even a single query — partial response is treated as non-compliance on the unanswered points.

Section 148: Notice for Escaped Income (Reassessment)

Issued when the department has reason to believe income was under-reported in a past year. The time limit is three years from the end of the relevant AY if escaped income is below Rs. 50 lakh, and ten years if it exceeds Rs. 50 lakh. A prior approval from the specified authority is required before issue. If you receive this, seek professional guidance before responding — the consequences can include re-computation of your tax with full interest and penalties.

Section 245: Refund Adjustment Against Prior Demand

Before issuing your current year's refund, CPC may adjust it against an older outstanding demand. You will receive an intimation giving you 30 days to respond before the adjustment is made. If the old demand is incorrect, raise a rectification or appeal immediately; do not let it pass by default.

How to Verify a Notice is Genuine: A Step-by-Step Check

Phishing notices sent via WhatsApp, SMS, and email mimicking the Income Tax Department have increased sharply. Follow this sequence before taking any action on a communication you receive.

1. Log in to the official e-filing portal at incometax.gov.in — not via a search engine link, type the URL directly.
2. Navigate to: My Account → e-Proceedings → View Notices and Orders.
3. Look up the Document Identification Number (DIN) printed on the physical or emailed PDF. Every genuine notice carries a DIN. Enter it at the "Authenticate Notice/Order" page on the portal.
4. If the DIN does not appear on the portal, the notice is not genuine — report it to the CPC helpline (1800-103-0025) and do not respond to the sender.
5. Verify the Assessment Year on the notice matches the return you filed. A notice mentioning AY 2024-25 when you expected a communication on AY 2026-27 is a different matter entirely.
6. Read the section quoted, the compliance date, and the specific mismatch or query mentioned. Do not respond generically — address each point raised.

Reconciling AIS, TIS and Form 26AS Before You Respond

Before you submit any response on e-Proceedings, download all three statements and compare them line-by-line with your filed ITR. Here is how:

Downloading AIS / TIS:

• Portal → e-File → Income Tax Returns → View AIS (or go to the AIS microsite: ais.incometax.gov.in)
• Download in PDF or JSON format
• Check all categories: salary, interest, dividends, securities transactions, mutual fund transactions, foreign remittances, SFT data

What to do when AIS shows an entry you don't recognise:

• You can file feedback on each AIS entry — mark it as "Information is correct", "Information is not fully correct", or "Information relates to another person / year"
• AIS feedback does not override the notice; you must still respond on e-Proceedings, but the feedback creates a trail showing you raised the issue proactively

Form 26AS vs. AIS — the key difference: Form 26AS shows only TDS/TCS credit. AIS shows the entire financial profile including transactions where no TDS was deducted. Always rely on AIS for a complete picture.

Worked Examples: Four Scenarios with Rs. Calculations

Scenario 1: Savings Bank Interest Not Fully Disclosed

Ravi, a software engineer with salary of Rs. 12 lakh, received Rs. 42,000 in savings bank interest across three bank accounts. His Form 16 showed the employer's deduction but the banks' SFT data in AIS captured the full interest. Ravi declared only Rs. 10,000 under section 80TTA (deduction limit) and omitted the gross figure.

• Gross interest income to disclose in ITR: Rs. 42,000
• Section 80TTA deduction: Rs. 10,000 (maximum under old regime)
• Taxable interest: Rs. 32,000
• Additional tax at 30% slab: Rs. 9,600
• Interest under section 234B (say 10 months): Rs. 960
• Total section 143(1) demand: approximately Rs. 10,560

If Ravi had filed an updated return under section 139(8A) before the CPC notice, the additional tax would have attracted only 25% surcharge (if within 12 months of the AY end), totalling roughly Rs. 12,000 — but he would have avoided the 143(1) demand process entirely.

Scenario 2: Two Form 16s — Standard Deduction Claimed Twice

Priya changed jobs in October 2025. Employer A issued a Form 16 showing full-year standard deduction of Rs. 75,000. Employer B did the same. Priya's ITR, based on combining both Form 16s, effectively claimed Rs. 1,50,000 as standard deduction.

• Excess standard deduction: Rs. 75,000
• Additional income at 30% slab: Rs. 22,500
• Under-reporting penalty u/s 270A (50%): Rs. 11,250
• Interest u/s 234B/234C: ~Rs. 2,500
• Potential total demand: ~Rs. 36,250

The correct approach is to consolidate both Form 16s, claim standard deduction only once at Rs. 75,000, and submit the combined salary figure. When the second employer does not know your first employer's deduction, submit Form 12B to them at the time of joining.

Scenario 3: Mutual Fund Redemption Missed in Schedule CG

Arjun redeemed equity mutual funds worth Rs. 5 lakh (purchased at Rs. 3.5 lakh) in February 2026. LTCG of Rs. 1,50,000 arose. He did not disclose this in Schedule CG, assuming it was within the Rs. 1.25 lakh LTCG exemption limit under the new Finance Act 2025 rules. However, the exemption for LTCG on equity/units is now Rs. 1.25 lakh per year (revised upward in Budget 2024), so the taxable LTCG was Rs. 25,000, taxable at 12.5%.

• Tax on Rs. 25,000 LTCG: Rs. 3,125
• AIS showed the redemption; Arjun did not file Schedule CG at all — this triggered a section 139(9) defective return notice (mandatory schedule missing)
• Had he not responded within 15 days, the return would be treated as not filed, triggering Rs. 5,000 late fee under section 234F in addition

Scenario 4: Section 245 Refund Adjustment

Neha was due a refund of Rs. 28,000 for AY 2026-27. CPC issued a section 245 intimation proposing to adjust this against an outstanding demand of Rs. 18,000 from AY 2022-23 (which arose from a section 143(1) demand she never contested).

• If she does not respond within 30 days: net refund = Rs. 10,000 (Rs. 28,000 – Rs. 18,000)
• If the AY 2022-23 demand was genuinely incorrect: she must file a rectification under section 154 or raise a grievance on CPC portal and include this in her section 245 response before the 30-day window closes

How to Respond via e-Proceedings

1. Log in → My Account → e-Proceedings
2. Select the relevant notice from the list and click Submit Response
3. Choose the type of response: "Partially Agree", "Disagree", or "Agree" (depending on the query)
4. Upload supporting documents (PDF, max file size as specified — typically 5 MB per file, multiple uploads allowed): Form 16, bank statements, capital gain statements, rent agreements, investment certificates
5. Type your written submission in the response box — be specific, address each point raised, cite documents uploaded
6. Submit and download the acknowledgement slip immediately — it carries the submission DIN, which you must preserve
7. Follow up on the portal under the same notice thread if a counter-response or additional information is requested

Physical submissions to the JAO are now rarely required or accepted for CPC-generated notices. For JAO-initiated notices under sections 142(1) and 143(2), confirm the submission mode in the notice itself.

Penalties for Non-Compliance

Ignoring or under-responding to an IT notice is never cost-free. The following penalties can apply:

Interest under section 234A (1% per month on unpaid tax after due date) and section 234B/234C (advance tax shortfall) runs automatically from the relevant dates regardless of whether a penalty is also levied.

Common Mistakes and Pitfalls to Avoid

• Relying only on Form 16: Form 16 Part A covers TDS; it does not capture savings interest, capital gains, or dividends. AIS is the real pre-fill source from AY 2026-27 onwards.
• Assuming nil-tax income need not be disclosed: Dividends below the basic exemption, capital gains within the Rs. 1.25 lakh LTCG threshold, and NRE interest (for returning NRIs who still hold NRE accounts after RNOR status expires) must all be disclosed even if no tax is payable.
• Filing without verifying AIS feedback: If you submitted AIS feedback disputing an entry but it was not actioned, your ITR may contradict what AIS still shows — leading to an automated mismatch.
• Not keeping acknowledgements: Every e-Proceedings response generates a system-dated acknowledgement. Courts and CIT(A) appellate orders have held that the burden of proving timely submission falls on the taxpayer.
• Missing the section 139(8A) window to file an updated return (ITR-U): If you spot an omission after filing, an ITR-U filed within 12 months of the end of the AY attracts only a 25% surcharge on additional tax — far less painful than a 50% under-reporting penalty after a notice.

Special Situations: Job Changes, ESOPs and Foreign Assets

Mid-year job change: Submit Form 12B to your new employer at joining so they can account for the income and TDS already deducted. If they do not, you must calculate aggregate tax, deposit any shortfall as advance tax or self-assessment tax, and ensure your ITR consolidates both Form 16s with only one standard deduction claim.

ESOPs and RSUs: The perquisite value (fair market value on exercise date minus exercise price) is taxed as salary and appears in Form 16 Part B. When you subsequently sell the shares, the cost of acquisition for capital gains is the FMV on the date of exercise — not the exercise price. Get a transaction statement from your broker or the company's ESOP administrator and fill Schedule CG accordingly. A mismatch between the broker's SFT data and your ITR here is one of the most common triggers for section 143(2) scrutiny.

Foreign assets and income: If you hold ESOPs in a foreign parent company, a bank account outside India, or any foreign asset — disclose in Schedule FA (Foreign Assets) and Schedule FSI (Foreign Source Income) even if the value is nominal. The Black Money (Undisclosed Foreign Income and Assets) and Imposition of Tax Act, 2015 imposes penalties of Rs. 10 lakh per undisclosed foreign asset, independent of the income tax. The CBDT receives Common Reporting Standard (CRS) data from over 100 jurisdictions automatically — concealment is not a viable strategy.

Key Takeaways

• Every genuine IT notice carries a DIN — always verify on incometax.gov.in before acting; do not respond to WhatsApp or unverified email notices.
• Section 143(1) intimations are machine-generated and can be raised by a rectification under section 154; most salaried-taxpayer demands are resolved at this stage without human assessment.
• AIS — not Form 16 — is the master data source the system uses; download and reconcile AIS before filing and before responding to any notice.
• Respond within the timeline stated on the notice: 15 days for section 139(9), 30 days for sections 143(1) and 245, as directed by the officer for 142(1) and 143(2).
• An ITR-U under section 139(8A) filed proactively within 12 months of AY-end attracts only a 25% additional tax surcharge — significantly cheaper than a 50% under-reporting penalty post-notice.
• Non-response is never neutral: it converts a routine mismatch into a best-judgement assessment, with penalties ranging from Rs. 10,000 (per notice default) to 200% of tax (for misreporting), plus interest that accrues daily.
• Document every submission: save the e-Proceedings acknowledgement slip with its DIN; for assessments, retain records for six assessment years from the end of the relevant AY.