How to Reply to Income Tax Notice in India — Section-wise Guide 2025

Types of Income Tax Notices in India

The Income Tax Department can issue notices under several sections of the Income Tax Act, each with a different purpose, severity, and deadline. Understanding which section the notice is issued under is the first and most critical step before responding.

Section 143(1) — Intimation (Most Common)

A Section 143(1) intimation is the most frequently received communication from the Income Tax Department. It is not a scrutiny notice — it is an automated message generated after your ITR has been processed. It tells you one of three things: you have a refund due, you owe additional tax, or there is "no demand, no refund."

Common Causes of a 143(1) Demand

• TDS credits in your ITR do not match the TDS reflected in Form 26AS or AIS
• Deductions claimed (80C, 80D, HRA) that the system cannot verify or that exceed limits
• Arithmetic error in the return as filed
• Income reported in AIS that was not included in the ITR
• Exempt income not correctly reported

How to Check Your 143(1) Intimation on the Portal

Log in to incometax.gov.in → e-File → Income Tax Returns → View Filed Returns → select the relevant AY → click "Download ITR-V/Acknowledgment." The 143(1) intimation is sent to your registered email and is also available under e-Proceedings → Notices.

How to Respond to a 143(1) Intimation

If the demand is correct (you genuinely owe the tax), pay it within 30 days through the Income Tax Portal (Pay Now → Self-Assessment Tax → Challan 280). Then submit a response in e-Proceedings confirming payment.

If the demand is incorrect (you believe the computation is wrong, e.g., TDS already deducted but not credited), file a rectification request under Section 154 online — go to e-File → Rectification Request → select the AY → upload the corrected details. Do not pay a demand you believe is wrong without consulting a CA.

Section 143(2) — Scrutiny Notice

A Section 143(2) notice means your ITR has been selected for detailed scrutiny. The Assessing Officer (AO) wants to examine specific transactions, income, or deductions in your return. Unlike the automated 143(1) intimation, this notice requires you to actively engage with the Income Tax Department.

How Cases Are Selected for Scrutiny

• CASS (Computer Aided Scrutiny Selection): The system flags returns based on risk parameters — high deductions, large cash transactions, mismatches with TDS/AIS data
• Manual selection: The AO may select a case based on specific intelligence or departmental directives
• Transfer pricing: International transactions above threshold are routinely scrutinized

Time Limit and Consequences

The AO must issue the 143(2) notice within 3 months from the end of the financial year in which the return was filed (i.e., by June 30 following the AY). The assessment under Section 143(3) must be completed within 12 months from the end of the AY (extendable to 18 months in special cases).

If you fail to respond to a 143(2) notice, the AO proceeds with a best-judgment assessment under Section 144 — this means the AO determines your income and tax liability without your input, almost always at a higher amount than what you declared. Penalties under Section 271(1)(b) (₹10,000 per default) also apply.

What to Submit in Response

• All investment proofs for deductions claimed (80C, 80D, 80G, HRA, etc.)
• Bank statements for the full financial year
• Capital gains computation statements from brokers / mutual fund houses
• Rental agreements, property papers if income from house property is involved
• Balance sheet and P&L account if you have business income
• Form 26AS, AIS, ITR V, and a comprehensive written explanation

Section 148 — Reassessment Notice

A Section 148 notice is among the most serious notices you can receive. It means the Income Tax Department believes that income chargeable to tax has "escaped assessment" — i.e., income that should have been taxed was either not reported or was under-reported in a previous year's ITR.

Reopening Time Limits

• Up to 3 years from the end of the relevant AY — for all cases where escaped income is suspected
• Up to 10 years from the end of the relevant AY — only if the escaped income is ₹50 lakh or more and is supported by evidence (e.g., search and seizure material, information from foreign jurisdictions)

Common Triggers for Section 148

• Large cash deposits in bank accounts not matching declared income
• Property sale proceeds not reported or under-reported (stamp duty value mismatch)
• Foreign income or assets not disclosed
• Information received from financial intelligence units (FIU-IND), banks, or registrar offices
• Stock market transactions (F&O, high-value equity trades) identified in third-party data

What to Do When You Receive a Section 148 Notice

• Do not ignore it. You must respond within 3 months (extendable on application)
• File a fresh ITR for the relevant AY, disclosing all income correctly
• If you believe the notice is issued beyond the limitation period or without valid sanction, challenge it in the High Court via a writ petition — your CA can advise on this
• Gather all documents related to the income the AO is questioning

Section 156 — Demand Notice

A Section 156 demand notice is issued when a tax, interest, penalty, or fine is payable following an assessment order (under Section 143(3), 144, 147, etc.). It specifies the exact amount due and requires payment within 30 days.

Options When You Receive a Section 156 Demand

• Pay the demand in full: If you agree with the assessment, pay within 30 days via Challan 280 to avoid interest under Section 220(2) at 1% per month
• Apply for stay / installment: If the amount is large and you cannot pay at once, apply to the AO for a stay of demand under Section 220(2A) or request payment in installments — this requires a CA to draft a proper application
• File an appeal to CIT(A): If you dispute the assessment order that gave rise to the demand, file an appeal under Section 246A within 30 days of the assessment order — a 20% pre-deposit of demand is typically required to get a full stay

Refunds from other AYs can be adjusted against an outstanding demand under Section 245. If you have a pending refund, you may receive a 245 notice before the demand is settled — see the next section.

Section 245 — Refund Adjustment Notice

A Section 245 notice is issued when the Income Tax Department proposes to adjust your pending refund (from the current AY or a previous AY) against an outstanding demand from another AY. This is an intimation — it gives you 30 days to object if you believe the demand against which the adjustment is proposed is incorrect or already paid.

How to Respond to a Section 245 Notice

• Log in to the Income Tax Portal → e-Proceedings → Notices → find the Section 245 notice
• If the demand is correct and valid, you can accept the adjustment (your refund will be netted against the demand)
• If the demand is disputed or already paid, submit a response objecting to the adjustment with supporting documents (e.g., payment challan, appeal filing acknowledgment)
• If you do not respond within 30 days, the department will proceed with the adjustment automatically

How to Access Notices on Income Tax Portal

All electronic notices issued by the Income Tax Department are available on the portal. Here is a step-by-step guide to finding and responding to them:

1. Go to incometax.gov.in and log in with your PAN and password
2. From the dashboard, go to Pending Actions → e-Proceedings
3. You will see a list of all pending notices / proceedings for each AY — click on the relevant AY
4. Download the notice PDF — read it carefully, note the section, the AO's observations, and the response deadline
5. Click "Submit Response" against the relevant notice
6. Enter your explanation in the text box and upload supporting documents (PDF format, each file up to 50 MB)
7. Submit the response and download the acknowledgment — save this as proof

5 Steps to Reply to an Income Tax Notice

1. Step 1: Read the notice carefully Identify which Section the notice is issued under, what exactly the AO is asking for, and the response deadline. Note the name and designation of the Assessing Officer. Do not assume — read every word.
2. Step 2: Log in to Income Tax Portal Go to incometax.gov.in → e-Proceedings → Pending Actions to see all electronic notices. Find the notice corresponding to your case, download the PDF, and check the submission deadline on the portal (which may differ from the notice date).
3. Step 3: Gather supporting documents Collect Form 26AS, AIS, ITR copy, bank statements, investment proofs, capital gains statements, rental agreements, and any other documents relevant to what the AO is querying. Organize them by category before uploading.
4. Step 4: Draft and submit your response Reply online through e-Proceedings with clear written explanations addressing each point raised by the AO, along with document uploads. For physical notices (rare), send your response via registered post with acknowledgment due to the AO's address before the deadline.
5. Step 5: Download acknowledgment and follow up After submitting online, download the e-Proceedings submission acknowledgment and save it. Set a calendar reminder for any scheduled hearing date or for the expected order date. Follow up on the portal if no response is received within 30 days of your submission.

Documents Commonly Required by Notice Type

When to Hire a CA for Tax Notice Reply

While a 143(1) intimation can often be handled by a reasonably informed taxpayer, the following situations always require a Chartered Accountant:

• Section 143(2) scrutiny notice — always hire a CA; the stakes are high and the process is document-intensive
• Section 148 reassessment notice — hire a CA immediately; reassessment can go back up to 10 years and result in heavy additions
• Demand exceeding ₹50,000 — whether to pay, seek stay, or appeal requires professional judgment
• Foreign income or foreign assets involved — FEMA and PMLA implications make this complex
• Multiple assessment years affected — coordinated response across years requires strategy
• You have never filed an ITR for the year in question — responding without filing is risky
• Prosecution risk under Section 276 or 276C — legal representation is essential
• Section 131 summons — you are being called to appear before the AO in person

Penalties for Not Responding to a Tax Notice

Ignoring a tax notice is never a safe option. The consequences escalate quickly:

FinsyncX Tax Litigation Services

FinsyncX is a Hyderabad-based CA firm that specializes in income tax notice handling, scrutiny response, and tax litigation across India. Our tax litigation services include:

• Notice review and risk assessment — we read the notice and tell you exactly what the AO is looking for and the risk level within 24 hours
• Response drafting — professionally worded responses that address every AO observation with supporting legal arguments and section references
• Document preparation — compiling, organizing, and indexing all required documents for submission
• Portal submission — uploading and submitting the response through e-Proceedings on your behalf
• CIT(A) appeals — filing first appeals before the Commissioner of Income Tax (Appeals) against adverse assessment orders
• ITAT representation — second appeals before the Income Tax Appellate Tribunal for high-value disputes