Income tax warning! The Income Tax Department sends emails and text messages to taxpayers near the end of the year to alert them to discrepancies in their deduction and exemption claims during processing Income tax returns. The blunt emails are being received by two categories of income tax payers – the employees whose entitlements are not reflected in Form 16, and the wealthy individuals who appear to have donated hundreds of thousands of pounds of funds to charity. Form 16 is a consolidated statement of salaries paid and taxes deducted at source that employers submit to the Income Tax Department on behalf of their employees. The income tax notices indicate that the assessment of income tax returns and the release of refunds for these categories of taxpayers have been suspended. The unexpected arrival of these ‘do not reply’ emails from the income tax department in the inboxes of certain taxpayers has caused unrest, according to an ET report.
ITR Stuck: Why Are You Receiving Tax Notices?
An Income Tax Ministry press release on December 23 described the exercise as one designed to assist taxpayers and encourage voluntary compliance. However, the sharp language of the emails has left many taxpayers confused about their next steps. Those who received notifications from the IRS are unsure whether to ignore the messages or withdraw claimed benefits and file revised tax returns before the Dec. 31 deadline.Also read | ITR Filing: Have you received a ‘nudge’ from the Income Tax department for tax returns and refund claims? Here’s what you need to doThe reasons cited by the Income Tax Department include incorrect Permanent Account Numbers (PANs) of recipient charities, organizations not registered under Section 80G of the Income Tax Act or refund claims under the old tax regime which “appear to be high as compared to gross salary”.
Tax problems
However, tax experts point out that many such emails are sent even though all of the taxpayer’s information is correct. According to the ET report, several people expressed confusion after being asked about donations to a well-known foundation in South India that works in the field of yoga and spiritual development. Under current rules, taxpayers are entitled to a deduction of 50% of the qualifying donation amount.At the same time, this deductible amount is limited and cannot exceed 50% of the total contribution to a trust or charitable organization registered under Section 80G.Taxpayers who have made contributions of more than Rs 2 lakh appear to be the main recipients of these emails, which notably are not formal communications and do not appear on the income tax portal.Several reasons are given in the news for the suspension of processing of income tax returns. These include holiday travel allowance claims that are significantly higher than the figures reported by employers on Form 16, capital gains reported on the tax return that do not appear to match entries in the annual information return and tax information summary, an unusually high house rent allowance claim or donations reported above the allowable deduction threshold.AIS and TIS are automatically generated data sets created by the department using transaction-level information and details reported by various third parties.Also read | Income tax refund: Your refund may be delayed if the revised tax return is not filed by December 31, 2025 – find out why here
Uncertainty about tax refunds
There is also increasing uncertainty about the timing of receiving tax refunds, even among those who remain confident that the information on their income tax returns is accurate.“A policy that may have been designed with good intentions has been undermined by ineffective communication. The use of fee-based terms like ‘false claims’ for donations reported by risk systems has left taxpayers who have been following the rules confused,” said Mohit Bang, partner at Hyderabad-based accounting firm Trivedi & Bang. “We are increasingly seeing cases where taxpayers with legitimate and properly substantiated claims are being caught by these automated notices,” he told ET.Bang noted that describing donations made through traceable banking channels to government-approved institutions as “potentially false” reflects a deeper disparity. He added: “If the goal is to simplify compliance, the department must refine its data analysis to minimize false positives. Automated communications should guide and correct, not intimidate, so that law-abiding citizens are not subjected to unnecessary stress despite full disclosure.””He also pointed out another problem, saying that refunds were delayed for more than four months from the date of filing of refund while notices pointing out such issues were issued barely a week before the deadline for filing.Ashish Karundia, founder of accounting firm Ashish Karundia & Co, explains: “The existing reporting framework already has strong safeguards in place, with recipient organizations required to file Form 10BD and issue donor-specific certificates in Form 10BE, which taxpayers rely on when filing their tax returns.” “This information is easily accessible for system-controlled verification of legitimate claims. While employers often set internal deadlines for reporting investments or deductions, which are usually in November or December, there is no legal bar on claiming genuine deductions that have not been reported to employers within these deadlines,” he told ET.For employed taxpayers, there are often discrepancies between the information in Form 16 and the income tax return because the investment details could not be provided to the employer in a timely manner.“While the goal may be constructive, the issuance of these notices late in the year has left many compliant taxpayers confused. A better approach would have been to engage earlier in the filing season to give individuals ample opportunity to reconcile differences or revise tax returns in an orderly manner. Such notices should serve as advisory nudges toward compliance rather than as an indication of misreporting, particularly when claims are valid and properly substantiated,” Karundia said.
