financial services

Responding to Tax Demand Notices


When an undisclosed source of income is found by the IT department upon search or requisition for bookkeeping records, accounts, statements or other record of transactions, the Assessing Officer in charge of your file has the discretion to impose between double to triple the money that you missed paying out on. The only limitation to this amount is that it should not exceed the total arrears you owe the income tax directorate.

Interestingly, earlier this year, there was a mass email attempt by hackers to seek outstanding tax demand payments after claiming there was an error in their tax returns. If you wish to guard against such phishing initiatives, remember that the tax department will never ask you to pay your taxes using an external link and would not expect you to share personal details over unencrypted ordinary mail.

  1. You can check tax notices on the income tax login portal by logging in. You would require your PAN number, date of birth and e-filing registration password.
  2. After the step 1 login, you must go to the tab that says ‘e-file’ and click on ‘Respond to outstanding tax demand’.
  3. Choose the Assessment Year to go to the notice you want to respond to. Then click on ‘Response-Submit and View’.
  4. You have the options to select among three buttons:
    1. ‘Demand is Correct’
    2. ‘Demand is partially correct’
    3. ‘Disagree with demand’

The first option will allow the tax officer to deduct tax demand from the refunds owed to you.

The second option gives you the opportunity to

  1. pay the amount mentioned via suitable challan forms,
  2. state the details of a rectification notice response with AO information or e-verification acknowledgement number.
  3. mention details of appeal filed or stay order delivered

The third option says ‘Disagree with Demand’, which, if chosen, must be accompanied with reasons for the disagreement.

In the tax notice format, note down the section under which the notice is given, the notification number, date, amount due,

Some of the Common Reasons why you could have received a tax notice for outstanding arrears is given below:

  1. Not filing tax returns.
  2. Not filing tax returns on time. This may have resulted in penalties which increases your tax dues.
  3. Unplanned losses to income. Your sources of income could be stocks or business, both of which are volatile compared to steady investments such as debt. Market risks could severely jeopardize the capital invested in either case.
  4. Unaccounted income tax deductions: You may have failed to mention all the deductions you have invested in and are thus qualified to lessen your tax arrears by claiming tax exemptions.
  5. Flagged Transactions: Where deposits or transfers of high value are performed, the transaction gets flagged by banks themselves. They are then obliged to report these to the tax authorities who may take action if a pattern of suspicious activity unravels.

It is very important, that you read the notice carefully to the extent of your understanding. You cannot ignore tax demand notices for that will only increase interest on defaulted arrears.

Responses need to be carefully drafted when incomes or investments are numerous. Call in a professional tax expert if you feel unwilling to expose yourself to further penalty. AllindiaITR is one such platform with very transparent charges and highly efficient services. The website is owned and promoted by Corwhite Solutions Private Limited.

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