ITR Filing: How to Reduce Risks from Scrutiny Notices

The recent spate of notices received by taxpayers makes it evident that transparent reporting with due compliance is sine qua non—a non-negotiable. It is important to understand why these notices are issued and how to avoid them.

- Sonu Iyer

Under existing law, a scrutiny notice is issued to audit the filed tax returns, ensuring that income has not been understated, the losses claimed are justified, and that taxes have been fully paid.

The scrutiny guidelines issued by tax authorities every year identify triggers such as search or survey cases, institutions receiving Section 80G donations, high-value transactions, tax deducted at source (TDS), investigations, Enforcement Wing intelligence, and recurring legal or factual issues.

The implementation of a robust risk management strategy, enhanced international information exchange, and the use of artificial intelligence and data-driven tools have empowered tax authorities to effectively identify potential red flags. But in many cases scrutiny can be avoided simply by exercising caution and due diligence at the time of filing tax returns.

This quote from Microsoft founder Bill Gates—“When you want to do your homework, fill out your tax return, or view the choices for a trip, you need a full-size screen”—reminds us of the need for a clear view of our finances and being meticulous. To avoid scrutiny, a proactive approach with accurate documentation is key.