📝 Decoding the Mailbox: Why Salaried Employees Get Income Tax Notices

For salaried employees, receiving a letter or email from the Income Tax Department (ITD) can be a source of immediate anxiety. However, these communications, known as Income Tax Notices, are often issued to address specific discrepancies, not necessarily to signal deliberate tax evasion.

Understanding the common types of notices and the underlying reasons for their issuance is the first step toward a calm and compliant resolution. Here is a detailed breakdown of the notices a salaried individual might receive and the financial activities that typically trigger them.

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1. The Seven Key Types of Income Tax Notices

Income Tax notices are classified by sections of the Income Tax Act, 1961, which precisely define the nature of the communication and the required action.

Notice Type	Section	What It Means for a Salaried Employee	Required Action
Intimation	143(1)	A routine notification summarizing the processing of your Income Tax Return (ITR). It confirms a refund due, tax payable, or simply confirms your data matches ITD records.	A prompt online response is required only if there is a data mismatch.
Inquiry/Information	142(1)	A request for additional documents, clarification on claimed deductions/income sources, or an inquiry if you failed to file an ITR when required.	Must provide the requested documents/clarification. Ignoring it can lead to penalties.
Scrutiny Notice	143(2)	Your return has been selected for a detailed, in-depth examination (scrutiny) to verify the accuracy of all reported income, deductions, and claims.	Must submit a comprehensive response with all supporting proofs and documents within the deadline.
Defective Return	139(9)	The ITD has identified one or more errors (defects) in your filed ITR (e.g., mismatch in name, incorrect form used, incomplete schedule).	You have 15 days to correct the return to prevent it from being declared invalid.
Demand Notice	156	A formal instruction informing you of outstanding tax, interest, or penalty that must be paid.	Requires immediate payment within 30 days to avoid further interest and penalties.
Income Escaping Assessment	148	Issued when the department believes you have not fully disclosed your income or have underpaid taxes in a previous assessment year.	Can lead to the reopening of a past assessment (reassessment).
Refund Adjustment	245	Notifies you that your current year’s expected tax refund will be adjusted or set off against any existing unpaid tax liabilities from previous years.	You can file an objection if you disagree with the outstanding liability.

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2. Common Triggers: Why Salaried Individuals Get Noticed

Even if your primary income source is salary, external factors and discrepancies in reporting can trigger an official notice:

A. Mismatch in TDS and Form 26AS/AIS

This is the most frequent trigger for salaried employees. The ITD relies on the Tax Deducted at Source (TDS) reported by your employer (in Form 16) and cross-references it with its own records (Form 26AS and Annual Information Statement - AIS).

v  Discrepancy: If the TDS figure reported in your ITR does not match the TDS reflected in your Form 26AS/AIS, it causes a mismatch, leading to a notice (usually under Section 143(1)).

B. Failure to Report All Income Sources

Salaried employees often forget to report or miscalculate income from secondary sources, which the ITD already tracks:

v  Interest Income: Interest earned from savings accounts, fixed deposits (FDs), or recurring deposits (RDs) is tracked by banks and reported to the ITD. If this is not included in your ITR, it will trigger a notice.

v  Rental Income: Income from a property that is let out must be reported under the head 'Income from House Property'.

v  Capital Gains: Profit from the sale of shares, mutual funds, or property (short-term or long-term capital gains) must be disclosed.

C. High-Value Financial Transactions (HVTs)

The ITD monitors various high-value transactions reported by banks and financial institutions (SFTs). If these transactions are inconsistent with your declared salary income, they signal potential unreported income.

v  Common HVTs that trigger scrutiny: High-value cash deposits (over ₹10 lakh in savings accounts), large mutual fund or share purchases (over ₹10 lakh), or significant property transactions (over ₹30 lakh).

D. Errors in Claiming Deductions and Exemptions

Claiming deductions without sufficient proof or claiming deductions that are not eligible can lead to scrutiny:

v  HRA/LTA Claim: Claiming House Rent Allowance (HRA) or Leave Travel Allowance (LTA) without possessing the requisite rent receipts or travel proofs (especially if the amounts are large).

v  Section 80C Mismatch: Claiming a deduction under Section 80C without actually making the required investment (e.g., life insurance premium, PPF contribution).

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3. Best Practices to Stay Compliant and Avoid Notices

1. Reconcile Before Filing: Always compare the figures in your Form 16, Form 26AS, and AIS before filing your ITR. Ensure your declared salary, TDS, and all other reported income (interest, dividend, capital gains) match the data available with the ITD.
2. Report All Income: Treat all sources of income, no matter how small, as taxable (unless explicitly exempt). Even interest income of a few hundred rupees must be disclosed.
3. Document HVTs: If you make a high-value transaction (like buying a car, property, or making large investments), ensure the source of funds is traceable and supported by your declared income or exempt sources (like gifts from relatives, inheritance).
4. Keep Proofs Ready: Maintain a physical or digital file of all investment proofs, rent receipts, utility bills, and loan interest certificates for at least 7 to 8 years after filing the return.
5. Seek Professional Help: For complex scenarios, such as multiple sources of income, foreign assets, or large capital gains, consulting a Chartered Accountant (CA) is highly recommended to ensure accurate compliance.