Before releasing any refund, the Income Tax Department verifies the return against records such as Form 26AS, the Annual Information Statement (AIS), the Taxpayer Information Summary (TIS) and data received from third-party sources. Any mismatch or unusual transaction identified during this process can result in the refund being held up and may lead to a notice or intimation.
Not every communication signals wrongdoing. Many are system-generated and seek clarification or correct processing errors. Understanding the common triggers helps you respond promptly and avoid unnecessary delays or demands.
Excessive deduction claims
Taxpayers are entitled to seek deductions under Sections 80C, 80D and other qualifying provisions, provided the claims are genuine and supported by relevant paperwork. Inflated claims or those lacking documentary proof can raise red flags. If the deductions seem excessive compared with the individual’s earnings or financial circumstances, they may come under greater scrutiny.
Discrepancies between ITR, AIS, TIS, and Form 26AS
One of the most common reasons for a notice is a mismatch between the income reported in the ITR and the information available with the Income Tax Department.
The Central Processing Centre (CPC) compares the income, TDS, TCS, interest, dividends, capital gains and other details reported in your ITR with data available in Form 26AS, AIS and TIS. Any mismatch, such as unreported salary, interest earnings, capital gains or other sources of income, could trigger a tax notice.
Mismatch in TDS
When claiming a tax refund, your TDS entries must align perfectly with what your employer, bank, or deductor has deposited and reported to the government.
If a deductor files their TDS return late or enters an incorrect PAN, the income tax portal will fail to verify your tax credit. Claiming unverified TDS credits almost always leads to an intimation under Section 143(1) proposing an adjustment.If the TDS claimed in the return does not match the records available with the tax department, the refund amount may be reduced or withheld, and a notice may be issued seeking an explanation.
High-value financial transactions
The Income Tax Department receives information about several high-value transactions from banks, financial institutions and other reporting entities.
These may include substantial cash deposits, expensive property purchases, significant investments or large credit card payments. If such transactions are not adequately explained through the income reported in the ITR, the department may seek clarification.
Outstanding tax demands from previous years
If you are due a refund for the current assessment year but have unpaid tax liabilities or open demand notices from earlier financial years, you will receive a notice under Section 245.
The tax department generally issues an intimation before making any adjustment, giving taxpayers a chance to present their case. They can agree with the proposed action or dispute it by providing relevant documents, such as evidence that a previous demand has already been cleared or is inaccurate. If no response is received, the adjustment may be processed by default.
