5 ITR Filing Mistakes That Will Get You an Income Tax Notice
Filing your income tax return filing is an annual responsibility for every taxpayer. However, the process can be fraught with potential errors that may trigger scrutiny from the Income Tax Department. In 2025, with the increased use of AI and data analytics, the department is more efficient than ever at flagging discrepancies. This article outlines the five most common mistakes in the income tax return filing process that can lead to a notice and how you can avoid them.
The consequences of receiving an income tax notice can range from delayed refunds and paying interest to penalties and a detailed scrutiny assessment. Being aware of these common pitfalls is the first step towards a hassle-free income tax return filing experience.
1. Failing to Report All Sources of Income
One of the most critical errors in income tax return filing is omitting certain income streams from your return. Many taxpayers believe that if tax has already been deducted at source (TDS), or if the income is small, it doesn’t need to be reported. This is incorrect.
What you must report: You are legally required to disclose income from all sources, including salary, interest from savings accounts or fixed deposits, dividends, rental income, capital gains from stocks or mutual funds, and even freelance or gig economy earnings.
Why it triggers a notice: The Income Tax Department receives this information independently from banks, employers, and other institutions via your Annual Information Statement (AIS) and Form 26AS. An automated system compares this data with your ITR. Any mismatch will almost certainly result in a notice under Section 143(1) or a scrutiny notice under Section 143(2).
2. Mismatch in TDS Claims and Form 26AS
Claiming Tax Deducted at Source (TDS) credit that does not match the records of the Income Tax Department is a red flag during income tax return filing.
The Problem: The TDS deducted by your employer or other payers (like banks on interest) is compiled in your Form 26AS. If you claim a credit for TDS that is not present in this form, it creates a discrepancy. This often happens if the deductor (e.g., your client for freelance work) has failed to file their TDS return or quoted your PAN incorrectly.
Consequence: This can lead to a notice for an excessive refund claim or a demand for additional tax, as the department will not grant credit for TDS not in its system.
3. Not Disclosing High-Value Transactions
Your financial transactions are closely monitored during the income tax return filing process. The tax department receives reports on high-value transactions, and if these are not consistent with your declared income, it raises suspicions of undisclosed income.
Examples of tracked transactions include:
- Cash deposits aggregating to ₹10 lakh or more in a savings account in a year.
- Purchase of property, shares, or other assets above a certain threshold.
- Large credit card payments exceeding ₹1 lakh per month.
If your reported income seems insufficient to justify such expenses, you may receive a notice under Section 142(1) (inquiry) or Section 148 (income escaping assessment).
4. Choosing the Wrong ITR Form
A fundamental step in correct income tax return filing is selecting the appropriate ITR form. The Income Tax Department has different ITR forms for different types of taxpayers and income sources. Using an incorrect form is a procedural error that can invalidate your return.
Common Confusions:
- Using ITR-1 when you have income from capital gains (requires ITR-2).
- Using ITR-2 when you have income from a business or profession (requires ITR-3).
- Selecting the wrong form for the presumptive taxation scheme.
Filing with an invalid form will lead to a defective return notice under Section 139(9), requiring you to re-file with the correct form within a specified deadline.
5. Claiming Ineligible or Excessive Deductions
While claiming legitimate deductions is a way to reduce your tax liability, overstating them or claiming ones you are not entitled to is a direct invitation for scrutiny during your income tax return filing.
Common areas of misuse include:
- HRA (House Rent Allowance): Submitting fake rent receipts or claiming without a valid landlord PAN.
- Section 80C: Claiming more than the permissible ₹1.5 lakh limit.
- Section 80D (Health Insurance): Claiming deductions for premiums not actually paid or for policies that are not eligible.
The department cross-verifies these claims with data from employers, banks, and insurers. An inconsistency can lead to disallowance of the deduction, a demand for the extra tax, and a penalty.
| Mistake | Potential Notice From IT Department | Key Action to Avoid |
|---|---|---|
| Not Reporting All Income | Section 143(1) Intimation or Section 143(2) Scrutiny | Reconcile ITR with AIS/Form 26AS |
| TDS Mismatch | Refund Hold or Notice u/s 143(1) | Verify TDS credit in Form 26AS before filing |
| High-Value Transactions | Section 142(1) Inquiry or Section 148 | Ensure reported income justifies large expenses |
| Wrong ITR Form | Defective Return Notice u/s 139(9) | Confirm form eligibility based on income sources |
| Ineligible Deductions | Scrutiny Notice u/s 143(2) & Demand Notice | Maintain documentary proof for all claims |
Frequently Asked Questions (Q&A)
Q1: I filed my ITR but made a mistake. What should I do?
If you discover an error after income tax return filing, you can submit a revised return. The Income Tax Act allows you to revise your return any number of times before the assessment year’s end (typically by December 31st of the relevant year). You must file it before the department processes your original return to avoid complications.
Q2: What is the difference between an intimation u/s 143(1) and a scrutiny notice u/s 143(2)?
An intimation under Section 143(1) is an initial communication about mathematical errors, incorrect claims, or mismatches with pre-filled data. It’s often automated. A scrutiny notice under Section 143(2) is more serious; it means your return has been selected for a detailed examination, and you will be required to produce documents and evidence to support your claims.
Q3: I received a notice. Does it mean I have done something wrong?
Not necessarily. A notice is often a request for more information or clarification. It could be due to a simple mismatch. However, you must respond to it promptly and accurately within the given timeframe. Ignoring a notice can lead to severe consequences, including a “best judgment assessment” (where the officer determines your tax liability) and penalties.
Q4: How long does the IT department have to send a scrutiny notice?
A notice under Section 143(2) for scrutiny must be issued within a strict timeline. For returns filed for the Financial Year 2024-25 (Assessment Year 2025-26), the notice must typically be sent by June 30, 2026 (within 3 months from the end of the financial year in which the return was filed).
Conclusion
A smooth income tax return filing process hinges on accuracy, transparency, and timeliness. By avoiding these five common mistakes—reporting all income, reconciling TDS, justifying high-value transactions, selecting the correct ITR form, and claiming only eligible deductions—you can significantly reduce the risk of receiving an income tax notice. In the era of AI-driven scrutiny, diligence is your best defense during your income tax return filing. When in doubt, do not hesitate to consult a qualified tax professional to guide you through the process.