ITR deadline nears: Common mistakes that can trigger a tax notice in FY2025-26

With the September 15 deadline for Income Tax Returns (ITR) filing fast approaching, taxpayers face increasing scrutiny. This year, the Income Tax Department has flagged approximately 1.65 lakh cases for detailed examination under Section 143(2), marking a significant rise in compliance checks compared to previous years. Such measures reflect a growing vigilance against discrepancies and tax evasion. The emphasis on compliance is more pronounced than ever, urging taxpayers to be meticulous in their filings.

Taxpayers are warned that filing an ITR does not conclude their tax obligations for the year. Notices may still be issued if the department identifies inconsistencies, significant transactions, or signs of underreporting. The tax authorities utilize advanced systems to detect any mismatches, leading to potential penalties or, in extreme cases, prosecution. This underscores the importance of accuracy and honesty in all tax-related matters.

Several common mistakes and omissions can lead to an income tax notice. A prominent issue is the mismatch between the TDS reported in Form 26AS or the Annual Information Statement (AIS) and the declared income in the ITR. This is particularly common among salaried individuals, freelancers, and those with multiple income sources. Such mismatches can easily be avoided by cross-verifying documents before submission.

Failing to report all income streams is another frequent error. Taxpayers often overlook interest from savings or fixed deposits, rental income, or capital gains, including cryptocurrency profits and foreign assets. Even non-taxable income must be declared to avoid discrepancies. Additionally, claims for deductions without proper documentation can attract penalties. Sections such as 80C, 80D, and exemptions like House Rent Allowance (HRA) require thorough documentation. It is crucial to maintain detailed records to substantiate claims.

Section 271AAD empowers the department to penalize false or omitted entries, including forged documents or concealed accounts. Misreporting extends to unsubstantiated claims under deductions. A sudden income drop compared to previous years can also raise suspicions unless validated by legitimate documentation like revised salary slips or job loss details.

High-value financial activities that go unreported are a major trigger for scrutiny. This includes cash deposits exceeding ₹10 lakh, credit card payments above ₹2 lakh, and large investments in mutual funds, bonds, stocks, property, and RBI bonds. Additionally, changing jobs without consolidating income details from all employers or selecting the wrong ITR form can lead to discrepancies and penalties. Being aware of these triggers can help in avoiding unnecessary scrutiny.

Experts advise verifying the authenticity of any tax notice by checking for the correct PAN and Document Identification Number (DIN). Understanding the reason for issuance and the relevant legal section is crucial. Taxpayers should gather all pertinent documents and seek professional advice to respond effectively and minimise penalties. Timely responses within the stipulated timeframe are essential to avoid further consequences.

Moreover, underreporting income can attract a 50% penalty, while deliberate misreporting—such as fabricating rent receipts or crypto transactions—may incur a penalty of up to 200% under Section 270A. A sudden drop in income without valid documentation can prompt tax officials to question the taxpayer. As scrutiny intensifies, adopting a meticulous approach in filing returns and remaining vigilant afterward is vital to steer clear of legal and financial troubles.