Tax Notices Under Income Tax Act 1961 (2025 Guide): Sections, Penalties & How to Respond

Confused by an income tax notice? This simple 2025 guide explains tax notices under Income Tax Act 1961, including sections, reasons, penalties, and how to check or respond online. Avoid mistakes and stay compliant with ease.

Introduction

Receiving a tax notice from the Income Tax Department can be unsettling, even if you’ve filed your returns on time. With the introduction of new reforms and digital compliance measures under the Income Tax Act, 1961, notices have become more precise, timely, and data-driven. Whether it’s an intimation under Section 143(1) or a scrutiny under Section 143(2), every notice carries specific intent—and knowing how to respond accurately is crucial.

In this guide, we break down the types of income tax notices, explain the relevant sections under the Income Tax Act 1961, highlight changes effective for AY 2025–26, and walk you through how to check, interpret, and respond to them effectively.

What Is an Income Tax Notice?

An income tax notice is a formal communication from the Income Tax Department, sent either to request information, seek clarifications, or notify discrepancies in a taxpayer’s filing or financial activity. Notices may stem from a mismatch in reported income, delays, underreporting, or even random scrutiny selection.

It is important to distinguish between notices and intimations:

• Intimations are auto-generated acknowledgments (such as under Section 143(1)), highlighting basic calculations or adjustments.
• Notices are formal demands or inquiries requiring action, clarification, or appearance.

Why and When Are Tax Notices Issued?

The reasons behind tax notices vary depending on the section invoked. Here’s a brief overview of major notice types issued under the Income Tax Act, 1961:

Section 142(1): Notice to Furnish Documents or Returns

Under Section 142(1) of the Income Tax Act, the Assessing Officer (AO) may issue a notice:

• To compel submission of the return if not yet filed.
• To seek additional documents or details in support of the return already filed.

Key Facts:

• Issued before assessment begins.
• Common triggers: high-value transactions, TDS mismatch, undisclosed income.
• Mandatory to comply; failure can result in best judgment assessment under Section 144.

You can refer to the official Income Tax portal to view or verify any such notice under your PAN. The portal provides detailed e-Proceedings and document upload features, minimizing in-person appearances.

Section 143(1): Intimation after Return Filing

The intimation under Section 143(1) is the first automatic verification step once you file your Income Tax Return (ITR). It compares:

• Income reported by you
• Data with the department (Form 26AS, AIS, TIS, etc.)
• Deductions claimed vs allowed

Outcomes could be:

1. No discrepancy found – no action needed.
2. Refund due – credited as per system.
3. Demand raised – if there’s a mismatch or underreported income.

If there’s any demand, it must be paid within 30 days, failing which interest under Section 220(2) begins to accrue. You can cross-verify this via the TRACES portal using your registered credentials.

Section 143(2): Scrutiny Assessment

Unlike the routine processing under 143(1), a notice under Section 143(2) indicates that your return has been flagged for scrutiny. Reasons may include:

• Mismatch in income and investments.
• Unexplained credits.
• Unusual deductions or refunds.

Timeline:

• Must be issued within 3 months from the end of the financial year in which the return was filed.
• The response must be furnished through the e-proceeding tab or via documents physically, as directed.

Early preparation of:

• Bank statements
• Property purchase details
• Business ledgers

…is highly recommended in such cases to avoid delay in closing the scrutiny.

Section 148: Income Escaping Assessment

A notice under Section 148 is issued when the Assessing Officer (AO) has reason to believe that income has escaped assessment in any previous year. This is typically a reassessment notice, where the department seeks to reopen past ITR filings based on new information or red flags raised through data analytics or third-party reports.

Common Triggers:

• Undisclosed foreign income or assets.
• High-value cash deposits or property transactions.
• TDS deductions not supported by ITR declarations.

Timeline for Issuance:

As per the latest provisions amended by the Finance Act, the time limit to issue a notice under Section 148 is:

• Up to 3 years from the end of the relevant assessment year.
• Up to 10 years if income escaped exceeds ₹50 lakhs and is represented in the form of an asset, expenditure, or book entry.

Before issuing a notice under this section, the AO must conduct an inquiry under Section 148A, giving the taxpayer a chance to explain their position. You can view the updated circulars and rules regarding reassessment notices on the CBDT’s official site.

Section 156: Demand Notice

A demand notice under Section 156 is sent when any tax, interest, penalty, fine, or other sum becomes payable under the Income Tax Act. These can result from:

• Completion of an assessment (including reassessment).
• Rectification under Section 154.
• Appeal order passed by CIT(A) or ITAT.

Key Requirements:

• Amount mentioned must be paid within 30 days of receipt.
• Failure to pay leads to additional interest under Section 220(2) and possible penalty proceedings.
• The notice will clearly mention the AY concerned, amount due, head under which payable, and instructions for payment.

Taxpayers can make online payments using the e-Pay Tax facility available on the TIN-NSDL portal. Always retain the challan and payment receipt for compliance tracking.

Section 245: Refund Adjustment Notice

Section 245 empowers the department to adjust a refund due to a taxpayer against any outstanding demand for any assessment year. This provision is often triggered when:

• A refund is generated through ITR processing.
• There exists an old tax demand (often unnoticed or disputed).

Before making such adjustments, the taxpayer must be notified in writing. You will receive a communication indicating:

• Amount of refund
• Outstanding demand amount
• Proposed adjustment
• Timeline to respond

If you disagree with the adjustment or believe the demand is incorrect, you can raise an online grievance or request rectification under Section 154 before the adjustment is executed.

Section 139(9): Defective Return Notice

When a return is found to be defective or incomplete, the AO may issue a notice under Section 139(9). This is typically due to:

• Missing ITR attachments or incorrect ITR form selection.
• Non-disclosure of mandatory income sources (e.g., salary, rent, capital gains).
• Return filed without verification.

The taxpayer is required to correct the defect within 15 days (or an extended period granted) from the issue date. If not rectified:

• The return is treated as invalid.
• It may be assumed as non-filing, exposing the taxpayer to penalties or disallowance of deductions.

You can track and resolve such notices via the e-Filing login dashboard, which allows correction submission, verification, and follow-ups online.

Section 144: Best Judgment Assessment

Section 144 of the Income Tax Act allows the Assessing Officer (AO) to complete the assessment to the best of their judgment when a taxpayer fails to:

• Respond to a notice under Section 142(1) or 143(2),
• Submit required documents or records,
• File the return at all under Section 139.

This provision is meant as a last resort, where the AO makes an estimated assessment based on available information, bank data, third-party statements, and analytics.

Implications:

• May result in higher tax liability due to lack of claimed deductions or exemptions.
• Interest and penalties are applicable.
• Challenging the outcome may require filing an appeal or rectification request.

Taxpayers can refer to updated procedural guidance issued by the Central Board of Direct Taxes to understand their rights and response options under such cases.

Section 131(1A): Notice for Investigation Authority

Section 131(1A) is primarily used by the Income Tax Department during search, seizure, or investigation proceedings. This notice is not limited to a specific assessment year and can be served:

• Before initiating a search under Section 132.
• When an officer believes that a person is concealing income or documents.
• To summon accounts, statements, or even examine a person on oath.

It holds powers similar to those vested in a civil court under the Code of Civil Procedure, such as:

This section is typically handled by the Investigation Wing and often precedes major enforcement action. You can explore more on jurisdictional investigation powers under the official DGIT (Investigation) manual.

Latest Developments for AY 2025–26: What’s New

With every financial year, the tax regime undergoes changes, and Assessment Year 2025–26 has brought significant updates that affect how tax notices are served, interpreted, and responded to.

Key Changes in Effect:

• Reduction in reassessment timelines for income escaping assessment under Section 148.
• Digital enforcement of e-Proceedings, with less physical interaction.
• Auto-populated data from AIS/TIS used in scrutiny and 143(1) notices.
• New ITR utility (offline and online) integrated with pre-fill functionality.

The new compliance reporting standards and real-time tracking features are aimed at reducing litigation and bringing procedural clarity. You can view the latest AY 2025–26 Income Tax return forms and instructions on the e-Filing utility download page.

How to Check and Authenticate a Tax Notice

To ensure legitimacy and avoid phishing or scam notices, taxpayers must verify the origin and content of any communication received from the Income Tax Department.

Step-by-step guide to authenticate a tax notice:

1. Visit the e-Filing Portal.
2. Navigate to Authenticate Notice/Order issued by ITD (under “Quick Links”).
3. Enter the Document Identification Number (DIN) and date.
4. Validate using PAN and mobile OTP if required.

Important Tips:

• All valid communications from the department carry a DIN.
• Emails are sent from @incometax.gov.in domain only.
• Notices are also reflected under your e-Proceedings tab once logged in.

For added clarity, you may download and maintain a record of all communications through the portal’s ‘View Notices/Orders’ tab.

How to Respond to an Income Tax Notice

Responding appropriately to a tax notice under the Income Tax Act 1961 is critical to avoid further legal consequences or monetary penalties. The Income Tax Department has streamlined the process with digital compliance measures, making it easier for taxpayers to handle notices online.

Response Steps (For Most Sections)

1. Log in to the Income Tax e-Filing Portal.
2. Go to Pending Actions > e-Proceedings.
3. Select the notice reference number.
4. Review the description and required action.
5. Upload the necessary documents or provide the requested explanation.
6. Submit the response with digital verification (e.g., Aadhaar OTP or DSC).

For notices under Section 143(2), 142(1), or 148, you may also be asked to attend hearings or provide specific supporting evidence in person or virtually.

Sample Flow: Responding to a Scrutiny Notice

Here’s a simplified representation of how the scrutiny response process works:

Penalties for Non-Compliance

Failure to respond to tax notices within the stipulated timeframe can lead to serious consequences under the Income Tax Act. These may vary based on the nature of the notice and the section invoked.

The penalty provisions have been tightened under recent amendments to promote responsible filing and full disclosure. You can refer to Section 270A details on tax penalties for a comprehensive overview.

Best Practices to Avoid Receiving Notices

While not all notices are avoidable—some are randomly selected—there are several proactive measures that can reduce the likelihood of receiving one.

Practical Tips:

• File your ITR accurately using the correct ITR form.
• Reconcile Form 26AS, AIS, and TIS before submitting returns.
• Avoid claiming unsubstantiated deductions or mismatched investment declarations.
• Report all income sources, including interest, dividends, freelance income, etc.
• Respond promptly to any queries or defects raised.
• Keep detailed records of supporting documents and transaction history for at least 6 years.

Additionally, you can use the department’s Compliance Portal to monitor any alerts or verification tasks assigned to you during the year. This helps resolve issues before a formal notice is even issued.

For guidance on high-risk areas that usually trigger a notice, taxpayers can review insights published by the Directorate of Income Tax (Systems), which explain how transaction mismatches or underreporting are flagged.

Questions on Tax Notices Under Income Tax Act 1961

Here are some of the most common questions related to tax notices under the Income Tax Act 1961:

Q1. Is every income tax notice a demand for payment?
No. Some notices, such as those under Section 143(1) or 142(1), are simply for verification or seeking additional information. Only notices under sections like 156 are formal demands for payment.

Q2. How much time do I get to respond to a tax notice?
Typically, notices provide 15 to 30 days for response. The exact timeline is mentioned in the notice. It’s essential to act promptly to avoid further legal implications.

Q3. Can I ignore a notice if I have already filed my returns correctly?
No. Even if your ITR is accurate, you must acknowledge and respond to the notice as instructed. Non-compliance may result in assessments under best judgment or penalties.

Q4. How do I know if a tax notice is genuine?
Always verify the Document Identification Number (DIN) through the e-Filing portal’s authentication service. Also, legitimate notices are reflected under your account’s “e-Proceedings” tab.

Q5. Can I revise my return after receiving a notice?
Yes, in some cases. If the notice is due to a defect (e.g., under Section 139(9)) or minor mistake, you may file a revised return or a rectification request under Section 154.

Q6. What should I do if I disagree with a demand notice?
You can file a rectification request or initiate an appeal within the prescribed time limit. Ensure all supporting evidence is submitted and acknowledged.

Summary Table: Notices and Next Steps

Conclusion

Understanding the nature and implications of tax notices under the Income Tax Act 1961 is crucial for every taxpayer in India. With increasing digitization, automated scrutiny, and information matching, the likelihood of receiving a notice—whether due to error, omission, or legitimate inquiry—has grown.

Responding on time, keeping your filings accurate, and using available online tools to verify and reply to notices ensures compliance and avoids penalties. If you’re unsure about the notice content or appropriate action, seeking professional assistance can save time and legal trouble.

You can explore the Income Tax Act bare act and rules for deeper reference or consult with an authorised representative.

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