| Tax & Finance Hub · Expert Guide |
Received an Income Tax Notice? Don’t Panic — Here’s Exactly What to Do
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A practical, jargon-free guide for Indian taxpayers — fully updated for the Income Tax Act, 2025 effective 1 April 2026. Real cases, step-by-step process, zero stress.
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| ● By Abhilash, Tax & Finance Hub |
● Updated June 2026 |
● 12 min read |
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Good News First!
Not every income tax notice means trouble. More than 70% are routine system-generated intimations due to data mismatches — most are resolved quickly if you act calmly and on time. |
Picture this: you open your email one fine morning and find an official message from the Income Tax Department. Your stomach drops. But before you spiral into panic, take a breath. In the vast majority of cases, notices are auto-generated and require nothing more than a simple online response.
This guide covers everything — which type of notice you received, why you received it, how to respond step by step, and what happens if you don’t. Three real-life case studies from different taxpayer profiles are included so you can see exactly how situations like yours play out.
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Important Legal Update — Income Tax Act, 2025
India’s new Income Tax Act, 2025 came into force on 1 April 2026, replacing the six-decade-old Act of 1961. Section numbers have changed. However, notices for Assessment Years up to AY 2026-27 continue under the old Act (transitional provision: Section 536(2)(c) of the new Act). New section numbers apply from Tax Year 2026-27 (returns filed July 2027 onwards). Both sets of numbers are shown clearly throughout this guide. |
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70%+
Notices are routine system-generated intimations
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15–30
Days typically given to respond to a notice
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₹10K+
Penalty for ignoring an inquiry or demand notice
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7 days
Avg. time to close a simple 143(1) case after responding
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STEP 1 — KNOW YOUR NOTICE
Types of Income Tax Notices — Identify Yours First
The section number on your notice is the single most important thing to identify. It tells you what the department wants, how serious it is, and exactly what you need to do. Check the notice PDF carefully — the section is almost always in the very first paragraph.
Old Section
(up to AY 2026-27) |
New Section
(from TY 2026-27) |
Type & Meaning |
Severity |
Your Action |
| 143(1) |
246(1) |
Intimation — Tax mismatch between your ITR and department’s computation. Most common; auto-generated. |
● Low |
Accept mismatch or file rectification. Pay demand if any. |
| 139(9) |
263(9) |
Defective Return — Your ITR has errors, missing schedules, or inconsistencies. |
● Medium |
Correct and refile within 15 days. |
| 142(1) |
244(1) |
Inquiry Notice — AO wants documents, books of accounts, or specific information. |
● Medium |
Submit documents by deadline. Do NOT ignore. |
| 143(2) |
246(2) |
Scrutiny Assessment — Detailed examination. AO suspects under-reporting of income. |
● High |
Engage a CA. Prepare comprehensive documentation. |
| 148A / 148 |
281 / 280 |
Reassessment — Income “escaped assessment” in a prior year. Show-cause is mandatory before a reassessment notice under the new Act. |
● Very High |
Respond to show-cause (148A / new Sec. 281) first. Engage a CA immediately. |
| 156 |
368 |
Demand Notice — Tax, interest, or penalty is due as per an assessment order. |
● High |
Pay within 30 days OR file appeal / rectification to contest. |
| 245 |
372 |
Refund Adjustment — Your refund is being set off against an old outstanding demand. |
● Medium |
Verify the old demand. Accept or respond online within 30 days. |
| 133(6) |
336(6) |
Third-Party Info Request — Confirming transactions reported by banks, registrars, or other agencies. |
● Info Only |
Verify in AIS and respond within the specified deadline. |
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Pro Tip on the New Act
For notices received after 1 April 2026 relating to Tax Year 2026-27, the new section numbers under the Income Tax Act, 2025 apply. For all older Assessment Years (including AY 2026-27 for FY 2025-26), the old 1961 Act sections remain operative per Section 536(2)(c) transitional provisions. Always check the Assessment Year / Tax Year printed on your notice before citing any section in your response. |
STEP 2 — UNDERSTAND THE TRIGGER
Why Did You Receive This Notice?
The Income Tax Department uses advanced data analytics, cross-referencing your Annual Information Statement (AIS), Form 26AS, Statement of Financial Transactions (SFT), and third-party data from banks, registrars, and mutual funds. Here are the eight most common triggers:
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AIS / TIS Mismatch
Income in your ITR doesn’t match the AIS. Most common with FD interest, dividend income, or freelance payments that appear from bank / TRACES data.
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High-Value Transactions
Credit card spends >₹10L p.a., cash deposits >₹10L, property purchases, large MF investments — all trigger SFT alerts automatically.
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TDS / Form 26AS Mismatch
TDS deducted by employer or bank doesn’t match ITR, or income against which TDS appears in 26AS is not fully declared in the return.
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Inflated Deductions
Unusually high 80C, 80D, HRA or LTA deductions without proof. The AI-driven system flags statistical outliers for scrutiny.
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Late / Non-Filing
Filing after the due date, not filing at all despite taxable income, or TDS appearing in Form 26AS with no corresponding ITR on record.
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Property / Capital Gains
Property sale proceeds declared inconsistently with stamp duty value / broker data. Old Sec. 50C (new: Sec. 55(2)) deems the higher of actual vs. circle rate as sale consideration.
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Crypto / Virtual Digital Assets
VDA income taxable at 30% from FY 2022-23. Non-disclosure or under-disclosure of crypto transactions is a rapidly growing trigger for notices.
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Foreign Assets / NRI Non-Disclosure
Under IT Act 2025, NRI / foreign asset provisions are stricter. Failure to disclose foreign bank accounts, properties, or shares can attract heavy penalties under the Black Money Act.
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STEP 3 — TAKE ACTION
Step-by-Step: How to Respond to an Income Tax Notice
Follow this exact sequence. Skipping steps is the single most common reason simple cases become complicated ones.
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Login to the Income Tax Portal
Go to incometax.gov.in and log in with your PAN. Navigate to Pending Actions → e-Proceedings (for scrutiny / inquiry notices) or Compliance Portal (for AIS / mismatch responses). All official notices are visible and downloadable here. |
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Read the Notice — 3 Things to Note Immediately
(A) Section number — use the table above to identify severity (B) Assessment Year / Tax Year stated in the notice (C) Response deadline — mark it in your calendar right now. For 143(1) intimations, the deadline to file a rectification under old Sec. 154 (new: Sec. 275) is 4 years from the end of the financial year in which the intimation order is passed. |
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Cross-Check Your Records — The Big Four
Compare the notice with: (1) Your filed ITR (2) AIS (Annual Information Statement — download from the portal) (3) Form 26AS (4) Bank statements & investment records. Most mismatches become completely clear at this stage. Note every discrepancy with the exact amount and source before you respond. |
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Decide Your Response Strategy
A) Agree & Accept — if the mismatch is genuine, accept and pay the demand. B) Disagree & Clarify — if the mismatch is an error (e.g., duplicate AIS entry), submit a clarification with supporting documents. C) File Rectification — if there’s a computation error in the intimation itself, file under old Sec. 154 / new Sec. 275. |
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Submit Your Response Online
All responses must now be submitted online only through the portal. For 143(1): use Response to Outstanding Demand. For scrutiny / inquiry: respond via e-Proceedings. Upload supporting documents in PDF (max 5MB per document). Postal responses are not accepted under the faceless assessment regime. |
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Track, Save & Follow Up
After submission, download the acknowledgment receipt immediately and save it. Track status under Pending Actions → e-Proceedings. If you receive no closure order within 30–45 days of responding, follow up via the Grievance tab or a written representation to the faceless unit. |
📂 Documents You Must Keep Ready
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| 🏢 Bank Statements (all accounts) |
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| 📈 Capital Gains Statement |
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| 🏠 Property Sale / Purchase Deeds |
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| 🪙 Crypto / VDA Transaction History |
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| 🏷 80C / 80D / HRA Investment Proofs |
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REAL-LIFE EXAMPLES
3 Real-Life Case Studies
CASE STUDY 1 — SALARIED EMPLOYEE
FD Interest Not Reported — Section 143(1) Intimation
| Profile |
Ravi Kumar, Software Engineer, Mumbai — Gross Income ₹12 Lakh (FY 2024-25) |
| Notice |
Section 143(1) Intimation — Tax Demand of ₹14,040 |
| Reason |
Bank had deducted TDS on ₹45,000 FD interest and reported it in AIS. Ravi inadvertently omitted this under “Income from Other Sources” in his ITR. |
| Action Taken |
Logged in to portal → Downloaded AIS → Verified FD interest of ₹45,000 → Accepted mismatch → Paid additional tax of ₹14,040 (inclusive of interest u/s 234B) via challan → Uploaded challan online. |
| ✓ Case closed in 6 days. Zero penalty. Acknowledgment saved. |
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CASE STUDY 2 — FREELANCER / CONSULTANT
Foreign Client Income — Section 142(1) Inquiry Notice
| Profile |
Priya Sharma, UX Consultant, Bengaluru — Income from 3 clients including one foreign client (USD payments) |
| Notice |
Section 142(1) Inquiry Notice — Explanation sought on income from foreign client |
| Reason |
Foreign remittances appeared in bank records via FEMA / RBI data. Income was declared under ITR-3 as Business Income, but AO sought invoices, contracts, and FIRC (Foreign Inward Remittance Certificate). |
| Action Taken |
Engaged a professional → Compiled all invoices, FIRCs, and export of services certificates → Submitted written explanation confirming services export (zero-rated under GST) → Responded online within 21 days. |
| ✓ Assessment completed in 45 days. No additional demand. CA fees ₹8,000 — well worth it. |
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CASE STUDY 3 — PROPERTY SELLER / HNI
Property Sale & Circle Rate Issue — Section 148A Reassessment Notice
| Profile |
Suresh Mehta, Retired Professional, Pune — Sold flat for ₹1.2 Crore in FY 2023-24 |
| Notice |
Section 148A (new Sec. 281) Show-Cause Notice for Reassessment |
| Reason |
Stamp Duty Value (circle rate) was ₹1.55 Crore. Under old Sec. 50C (new: Sec. 55(2)), the higher of actual sale price or SDV is the deemed sale value. Suresh computed LTCG on ₹1.2 Cr; department computed it on ₹1.55 Cr — a difference of ₹35 Lakh in the base value. |
| Action Taken |
CA filed a detailed reply citing the proviso to Sec. 50C: if SDV does not exceed actual consideration by more than 10%, the actual price is accepted. Filed a registered valuation report. The AO dropped the reassessment at the 148A stage itself. |
| ✓ Reassessment dropped with no assessment order. Potential demand of ₹7 Lakh+ avoided at zero tax cost. |
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WHAT NOT TO DO
6 Common Mistakes That Make Things Worse
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Ignoring the notice. If you ignore a 143(1) intimation, it converts into a confirmed demand and interest starts accruing at 1% per month under old Sec. 220(2) (new: Sec. 349(2)). Ignoring a 142(1) can lead to a best judgement assessment under old Sec. 144 (new: Sec. 247). |
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Missing the deadline. Once the deadline passes, the demand is confirmed and you lose the right to respond without a formal condonation application. Extensions must be requested before the deadline, not after. |
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Filing a vague or incomplete response. Saying “I have no knowledge of this transaction” without documentation only invites further inquiry. Your response must be specific, fact-based, and supported by attachments. |
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Not reconciling AIS first. AIS contains data from multiple third parties — some entries may be duplicated or erroneous. Always reconcile AIS vs. your ITR vs. your actual records before accepting or disputing any figure. |
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Confusing old and new section numbers. From Tax Year 2026-27, notices carry new section numbers under the IT Act, 2025. Citing the wrong section in a formal reply looks unprofessional and can weaken your submission. |
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Handling scrutiny or reassessment alone. Sections 143(2), 148, and 148A (new: 246(2), 280, 281) involve detailed multi-month proceedings. Professional CA representation is strongly advisable; the fee is almost always less than the penalty risk from an incorrect response. |
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KNOW THE CONSEQUENCES
What Happens If You Ignore the Notice?
| Offence |
Section (Old / New) |
Consequence |
| 143(1) demand not paid within 30 days |
220(2) / 349(2) |
Interest at 1% per month on outstanding demand |
| Non-compliance with 142(1) notice |
271(1)(b) / 439 |
Penalty ₹10,000 per failure + possible best judgement assessment |
| Failure to respond to scrutiny notice 143(2) |
144 / 247 |
Ex-parte assessment — AO decides unfavourably based on available info |
| Under-reporting of income |
270A / 442 |
50% of tax on under-reported income; 200% for misreporting |
| Non-disclosure of foreign assets / VDAs |
Black Money Act / Sec. 132 (IT Act 2025) |
Penalty up to 300% of tax + possible prosecution |
| Wilful tax evasion — prosecution |
276C / Ch. 22 (IT Act 2025) |
Imprisonment 3 months to 7 years + fine |
COMMON QUESTIONS
Frequently Asked Questions
| What is the very first thing I should do when I receive an income tax notice? |
| Don’t panic — and don’t ignore it. Login to incometax.gov.in, find the notice under Pending Actions → e-Proceedings, note the section number and response deadline, then start reconciling your records before you respond. |
| Does the Income Tax Act, 2025 change how I respond to a notice? |
| For notices relating to Assessment Years up to AY 2026-27, the old Income Tax Act, 1961 continues to apply as per transitional provisions in Section 536(2)(c) of the new Act. The online response process on the portal remains unchanged. New section numbers will appear only on notices for Tax Year 2026-27 and beyond. |
| I received a 143(1) intimation and agree with the demand. What do I do? |
| Login to the portal, go to Response to Outstanding Demand, select “Agree”, and pay the additional tax online using a challan. Cases are typically closed within 7–15 days of payment. Always save your challan and the response acknowledgment. |
| I believe the AIS data is incorrect. Can I dispute it? |
| Yes. Submit “Feedback” on the AIS entry directly on the portal, explaining why it is incorrect. Simultaneously, respond to the notice citing the AIS error and upload supporting documents (e.g., a bank statement showing the amount is not taxable). The AO must consider your objection before passing any order. |
| What are the response deadlines for different types of notices? |
| 143(1): 4 years to file a rectification | 139(9): 15 days to correct defective return | 142(1) / 143(2): as specified, usually 15–30 days | 148A / 148: 15 days for show-cause | 156 demand: 30 days to pay or contest. Always read the specific deadline on the notice. Apply for extension before the deadline if needed. |
| Do I need a CA for every notice? |
| Not always. Simple 143(1) intimations where you agree with the mismatch can usually be handled online by yourself. For 143(2) scrutiny, 148/148A reassessment, large demand notices, or notices involving foreign assets or crypto — professional/CA representation is strongly advisable. The professional/CA fee is almost always less than the risk of an incorrect response. |
| What are the new section numbers for reassessment under the IT Act, 2025? |
| Old Section 147 (income escaping assessment) → New Section 279. Old Section 148 (reassessment notice) → New Section 280. Old Section 148A (show-cause before reassessment) → New Section 281. The substantive law and show-cause procedure remain the same; only the section numbers have changed. |
| I missed the notice deadline. What do I do now? |
| Act immediately. File a condonation of delay request via the Grievance section or in writing to the AO, explaining the reason for delay. While approval is not guaranteed, ignoring it further is always worse. Engage a CA to check if an ex-parte order has already been passed and what remedies remain, including an appeal to CIT(A) under old Sec. 246A (new: Sec. 355) within 30 days of the order. |
QUICK SUMMARY
Your Complete Action Checklist
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Identify the notice section number and Assessment / Tax Year |
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Note the response deadline and calendar it right now |
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Download and reconcile AIS, Form 26AS, and your filed ITR |
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Decide your strategy: Accept, Clarify, or Contest |
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Gather all supporting documents before drafting your response |
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For scrutiny / reassessment notices — engage a CA/professional before responding |
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Submit response online via e-Proceedings — postal responses are not accepted |
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Download and save the acknowledgment receipt immediately after submission |
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Pay any confirmed demand within 30 days to stop interest from accruing |
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Track status; if no closure in 45 days, follow up via the Grievance tab |
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📚 Related Reads on Tax & Finance Hub
| Need a buddy to help you out? We are just a text away. Write to us at: tax.abhilash@gmail.com |
| Disclaimer: This article is prepared by for general informational and educational purposes only. It reflects the laws as per the Income Tax Act, 1961 (applicable up to AY 2026-27) and the Income Tax Act, 2025 / Income Tax Rules, 2026 (effective 1 April 2026 for Tax Year 2026-27 onwards). Tax laws are subject to change; individual circumstances vary. This content does not constitute personalised tax or legal advice. Please consult a qualified Chartered Accountant or tax professional before taking any action based on this article. Tax & Finance Hub and the author accept no liability for any loss arising from reliance on this content. |
Abhilash
Author | Tax & Finance Hub
A Tax professional with over a decade of hands-on experience in Tax and Finance. I love taxation and at Tax & Finance Hub, we are trying to make you fall in love with the same as well by simplifying complex GST, income tax, and finance topics for businesses and individuals across India.
