There's been a surge in income tax notices. Here's why, and how to respond.

livemint.com:

There has been a marked increase in the number of income tax notices issued to taxpayers across India in recent months. These communications – on everything from defective returns to demands for additional taxes – have caused anxiety and confusion, especially among individual taxpayers. 

This article delves deeper into the reasons behind the increase in income tax notices and offers practical advice on how to respond to them effectively.

The surge in these notices is largely due to the Income Tax Department's heightened focus on compliance and its efforts to identify discrepancies in financial reporting. These include:

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The increase in income tax notices is also partly driven by the expanded scope of compliance measures, such as the statement of financial transactions (SFT). Banks, financial institutions and other entities are now required to report high-value transactions, leading to increased scrutiny of taxpayer activities. Even minor discrepancies or unusual transactions can trigger a notice. 

By responding promptly and accurately, and seeking professional advice when needed, taxpayers can ensure compliance, avoid delays in processing tax refunds, and minimise the risk of penalties.

Neeraj Agarwala is partner, Nangia & Co LLP.