Differences between the taxpayer’s declared income and the data that the Income Tax Department has access to through Form 26AS, which includes details on taxes withheld at the source, or third-party reports.

Excess Deductions Claimed:

When taxpayers claim deductions that do not match the department’s data or go over the permitted limits outlined in tax regulations.

Underreporting of Income:

This occurs when a taxpayer fails to declare all of their income, hence underreporting their taxable income.

Non-Disclosure of Additional Relevant Information:

When investments or other income that should have been included on the return are not disclosed.

Under Section 270A of the Income Tax Act, taxpayers who underreport their income or make false statements on their ITR may be fined. Underreported tax penalties can range from 50% to 200%.

If taxes are due because of an error on the return, the Department may charge interest under Sections 234A, 234B, and 234C for late payments.

Criminal Prosecution:

If a disparity indicates deliberate fraud or evasion, taxpayers may face criminal prosecution under certain sections of the Income Tax Act. Penalties or jail time may result from this.

Taxpayers must file an amended return if errors are found. Failure to do so may lead to a notice of assessment, an audit, and the return’s rejection.

Audit and Examination:

Should inconsistencies be found, the tax authorities may conduct a more comprehensive review of the taxpayer’s financial documents. This increases the likelihood of an audit, which is a time-consuming and unpleasant procedure.

Take a look at Form 26AS:

which provides a comprehensive summary of all taxes paid in advance, taxes withheld at the source (TDS), and other income data.

Check Bank and Investment Data:

Ensure that interest income, capital gains, and other earnings are recorded correctly.

Verify with Employers and Financial Institutions:

Check to be sure your interest, salary, and other payments are displayed accurately.

Check Your Eligibility for Deductions:

Verify that the deductions you are requesting correspond to the true expenses you have incurred.

Recheck Document Proofs:

Make sure you have the appropriate documents (receipts, invoices, etc.) to back up the claimed deductions.

Review Your Return Once More:

Verify that all profits have been recorded accurately from all sources.

Check Tax Payments and Refund Status:

Confirm that any advance tax or TDS deductions made on your behalf are accurately shown in your ITR.

Verify Refund Status:

Make sure the money is correctly included in your return if you should get a refund.

Report Capital Gains Accurately:

Ensure that asset sales generate both immediate and long-term capital gains that are appropriately documented and subject to taxes.

Provide Proof of Transaction:

Include relevant documents, such as sales and purchase receipts and trading statements.

File a revised return:

If discrepancies are found, you may file an updated ITR in line with Section 139(5) of the Income Tax Act. Before the deadline, which is usually one year following the end of the assessment year, the amended return must be filed.

Consult a tax professional:

If the disparity is complex or you are unsure of what to do next, it is preferable to see a tax expert. They can help you draft an updated return and provide guidance on how to fix any errors.

Pay any taxes or penalties that are still due:

If the difference increases your tax liability, be sure to pay the entire amount plus any applicable interest or penalty.

Maintain precise documentation:

Make sure you save all of your income, deductions, and tax payment records, including statements and receipts, for future use in the event that an inquiry is carried out.

Send in your ITR as soon as you can:

Make sure you have adequate time to examine your return and avoid rushing things at the last minute.

Tax filing software and e-filing sites can help you reduce the likelihood of errors by helping you check your return before submitting it.

Verify Third-Party Information:

Check your Form 26AS against information from other tax returns.

Seek Expert assistance:

If you are unsure about the specifics, seek expert assistance before submitting your ITR.

Don't Let Paperwork Slow You Down

Income Tax

Decoding CBDT Alerts: Understanding ITR Mismatch Concerns

Nikita P

January 06, 2025

September 01, 2025

7 min read

Introduction

The Central Board of Direct Taxation (CBDT) has alerted taxpayers to inconsistencies in their Income Tax Returns (ITR) and encouraged individuals and businesses to act promptly to avoid potential penalties. As a result of discrepancies found between reported income and actual data on file with the Income Tax Department, these letters serve as a reminder of the growing need for accuracy and transparency in tax filings. This lengthy article will discuss the implications of these inequities, how taxpayers could remedy them, and the potential consequences of ignoring them.

Understanding Income Tax Returns (ITR)

In an official document submitted with the Indian Income Tax Department, an income tax return (ITR) details a person’s or entity’s income, the amount of tax payable, and other relevant financial information. There are several ITR forms available according on the income and status of the person.

Taxpayers have a deadline to file their returns at the end of each fiscal year. The process involves reporting income, deductions, exemptions, and any other information needed to calculate the total amount of taxes owed.

What Causes the CBDT to Issue ITR Mismatch Alerts?

In recent years, the CBDT has placed an increasing emphasis on tracking irregularities in filed ITRs.

Income Mismatch: Differences between the taxpayer’s declared income and the data that the Income Tax Department has access to through Form 26AS, which includes details on taxes withheld at the source, or third-party reports.
Excess Deductions Claimed: When taxpayers claim deductions that do not match the department’s data or go over the permitted limits outlined in tax regulations.
Underreporting of Income: This occurs when a taxpayer fails to declare all of their income, hence underreporting their taxable income.
Non-Disclosure of Additional Relevant Information: When investments or other income that should have been included on the return are not disclosed.

What Effects Does the CBDT Alert Have on Taxpayers?

The CBDT notification on ITR inconsistencies alerts the taxpayer to the inconsistency of the information they submitted when they file their returns. These discrepancies might be minor administrative errors or serious ones that raise questions about the taxpayer’s intent or level of awareness.

The message serves as a final reminder to correct the problem before the agency takes action. There are several legal ramifications for disregarding these warnings, such as:

Fines: Under Section 270A of the Income Tax Act, taxpayers who underreport their income or make false statements on their ITR may be fined. Underreported tax penalties can range from 50% to 200%.
Interest: If taxes are due because of an error on the return, the Department may charge interest under Sections 234A, 234B, and 234C for late payments.

Criminal Prosecution: If a disparity indicates deliberate fraud or evasion, taxpayers may face criminal prosecution under certain sections of the Income Tax Act. Penalties or jail time may result from this.
Revision of ITR: Taxpayers must file an amended return if errors are found. Failure to do so may lead to a notice of assessment, an audit, and the return’s rejection.
Audit and Examination: Should inconsistencies be found, the tax authorities may conduct a more comprehensive review of the taxpayer’s financial documents. This increases the likelihood of an audit, which is a time-consuming and unpleasant procedure.

Read blog: A Step-by-Step Guide to Filing Your Income Tax Return

Types of Common ITR Mismatches and How to Fix Them

Based on certain common irregularities, the CBDT may flag an individual’s ITR for mismatches. Let us look at these common types and possible fixes.

A) Unreliable Income

Income mismatch is among the most frequent causes of disparities. This occurs when the taxpayer’s income does not match the income reported to the Income Tax Department by third parties, such as banks, employers, and other financial institutions.

Methods for correction:

Take a look at Form 26AS: which provides a comprehensive summary of all taxes paid in advance, taxes withheld at the source (TDS), and other income data.
Check Bank and Investment Data: Ensure that interest income, capital gains, and other earnings are recorded correctly.
Verify with Employers and Financial Institutions: Check to be sure your interest, salary, and other payments are displayed accurately.

B) Inauthentic Exemption or Deduction Claims

Taxpayers often claim deductions from Sections 80C (life insurance, provident fund, etc.), 80D (health insurance), and 80E (education loan). False statements, however, might lead to mismatches.

Methods for correction:

Check Your Eligibility for Deductions: Verify that the deductions you are requesting correspond to the true expenses you have incurred.
Recheck Document Proofs: Make sure you have the appropriate documents (receipts, invoices, etc.) to back up the claimed deductions.

C) Falsifying income

Underreporting income may occur accidentally or on purpose.

Methods for correction:

Include interest, dividends, rental income, and freelance revenue when reporting all sources of income.
Review Your Return Once More: Verify that all profits have been recorded accurately from all sources.

D) Making false claims about taxes or refunds

If the individual declares incorrect TDS or advance tax paid, or does not receive refunds to which they are entitled, the return may be noted.

Methods for correction:

Check Tax Payments and Refund Status: Confirm that any advance tax or TDS deductions made on your behalf are accurately shown in your ITR.
Verify Refund Status: Make sure the money is correctly included in your return if you should get a refund.

E) Inconsistency between capital gains

Mismatches can also arise from taxpayers failing to report capital gains from real estate transactions, mutual funds, or investments.

Methods for correction:

Report Capital Gains Accurately: Ensure that asset sales generate both immediate and long-term capital gains that are appropriately documented and subject to taxes.
Provide Proof of Transaction: Include relevant documents, such as sales and purchase receipts and trading statements.

What to Do When You Receive an Alert

If the CBDT has informed you of ITR differences, you need to respond correctly to prevent penalties and legal problems.

Check your filed ITR against the information on your Form 26AS and any relevant documents.
File a revised return: If discrepancies are found, you may file an updated ITR in line with Section 139(5) of the Income Tax Act. Before the deadline, which is usually one year following the end of the assessment year, the amended return must be filed.
Consult a tax professional: If the disparity is complex or you are unsure of what to do next, it is preferable to see a tax expert. They can help you draft an updated return and provide guidance on how to fix any errors.
Pay any taxes or penalties that are still due: If the difference increases your tax liability, be sure to pay the entire amount plus any applicable interest or penalty.
Maintain precise documentation: Make sure you save all of your income, deductions, and tax payment records, including statements and receipts, for future use in the event that an inquiry is carried out.

How to Avoid Future ITR Inconsistencies

The best way to avoid receiving a notification about ITR inconsistencies is to take proactive steps to ensure that your returns are accurate. The following guidance can assist you in avoiding future errors:

Keep a file with all of your income and tax documentation to stay organised.
Send in your ITR as soon as you can: Make sure you have adequate time to examine your return and avoid rushing things at the last minute.
Use E-filing Tools: Tax filing software and e-filing sites can help you reduce the likelihood of errors by helping you check your return before submitting it.
Verify Third-Party Information: Check your Form 26AS against information from other tax returns.
Seek Expert assistance: If you are unsure about the specifics, seek expert assistance before submitting your ITR.

Conclusion

The CBDT’s notices on ITR anomalies serve as a crucial reminder to taxpayers to complete their returns meticulously and precisely. Inconsistencies can be avoided before they cause penalties, interest, and other legal problems by acting quickly to correct them. By being organised, regularly reviewing your financial records, and, when needed, getting professional help, you can ensure a straightforward and lawful tax filing procedure. Remember that filing your taxes on time contributes to your own financial security as well as the stability of the national economy.