Processing of Income-tax Return, Related Notices and Way Forward
Filing an Income-tax Return (ITR) is only the first step in compliance. After submission and verification, the return is processed by the Income-tax Department and taxpayers may receive communications or notices. Understanding the process helps ensure timely responses, avoids unnecessary stress and reduces the risk of penalties.
Below, we explain how the return is processed, the notices that may arise and the appropriate actions to take
Processing of Income-tax Returns
Once an ITR is filed and verified, it is processed by the Centralized Processing Centre (CPC) under Section 143(1) of the Income-tax Act. During this process, the CPC:
- Verifies arithmetical accuracy
- Matches income and tax payments (TDS, TCS, Advance Tax) with Form 26AS, AIS, and TIS
- Examines eligibility of deductions and exemptions
Based on this verification, the CPC computes tax payable or refund due. Following processing, an Intimation under Section 143(1) is issued, which may either accept the return as filed or show adjustments, resulting in a refund, tax demand, or no change. Common reasons for adjustments include:
- Mismatch in TDS or advance tax
- Incorrect deduction claims
- Arithmetical or clerical errors
Tax-payers should carefully review the intimation to confirm that all income, deductions, and tax credits are correctly reflected as per the Return of Income (ITR). For refunds, it is also important to verify that interest under Section 244A (if applicable) has been calculated accurately.
Way Forward
- If the intimation is correct, no action is required.
- If errors are identified, a rectification request under Section 154 should be filed within the prescribed time.
- If the adjustment is not permissible under Section 143(1), involves legal interpretation, or cannot be rectified, an appeal can be filed with the Commissioner of Income-tax (Appeals) within 30 days of receiving the intimation.
Proposed Adjustment under Section 143(1)(a)
Before making any adjustment during the processing of a return under Section 143(1), the Income-tax Department may issue an Intimation for Proposed Adjustment under Section 143(1)(a). These proposed adjustments generally arise when there is a difference between the figures reported in the tax audit report and the income or deductions declared in the filed return. Such adjustments may include disallowance of deductions or exemptions, corrections of apparent inconsistencies, or mismatches in income or tax credits based on the information available to the CPC.
The purpose of this intimation is to provide the tax-payer, an opportunity to respond before the adjustment is finalized. Tax-payers are required to examine the proposed adjustment carefully and submit their response online within the prescribed time, generally 30 days. If the taxpayer agrees, the adjustment will be made while processing the return. If the tax-payer disagrees and submits a proper explanation with supporting details, CPC may drop the proposed adjustment after due consideration.
Way Forward
- Review the proposed adjustment thoroughly with reference to the ITR filed.
- Respond within the specified time through the incometax portal. Failure to respond may result in the adjustment being made automatically.
- Provide clear explanations and relevant supporting documents while disagreeing with the proposal.
- If the adjustment is made despite a valid response, the tax-payer may subsequently seek rectification under Section 154 or file an appeal before the Commissioner of Income-tax (Appeals), as applicable.
Timely and accurate response to a proposed adjustment notice under Section 143(1)(a) can prevent incorrect demands and unnecessary litigation.
Notice under Section 139(9) – Defective Return
A return may be considered defective due to missing information, incorrect ITR form selection, or nonsubmission of required statements (e.g., balance sheet)
Way forward
- Rectify the defect within the specified time (generally 15 days)
- Failure to respond may render the return invalid and lead to non-compliance
Messages and Nudges from the Income-tax Department – CBDT’s NUDGE Initiative
In addition to formal notices, tax-payers may also receive SMS or e-mail communication from the Income-tax Department as a part of the CBDT’s NUDGE (Non-Intrusive Usage of Data to Guide and Enable) initiative. In December 2025, the CBDT issued a press release out-lining a targeted, risk-based compliance drive under this framework, reflecting the Department’s increasing use of data analytics and risk management systems to identify potential inaccuracies in ITRs.
Under this initiative, cases for Assessment Year 2025–26 were identified where deductions or exemptions appeared potentially ineligible based on system-based risk indicators. Key areas flagged included claims of bogus donations to Registered Unrecognized Political Parties (RUPPs), quoting of incorrect or invalid PANs of donees, and errors in the extent or eligibility of deductions and exemptions claimed. These indicators suggested possible under-statement of income or ineligible refund claims.
Way Forward
With the due date for filing revised returns having expired on 31 December 2025, taxpayers who did not act on these nudges may still consider filing an updated return from 1 January 2026, subject to payment of additional tax, as permitted under the Income-tax Act.
General Guidance for Taxpayers
- Always verify notices on the official income-tax portal
- Adhere strictly to response deadlines
- Maintain records of filings and acknowledgements
- Avoid ignoring communications from the department
- Seek expert advice where matters involve interpretation or large amounts
Conclusion
Income-tax notices are a part of the compliance eco-system and when handled properly, can be resolved smoothly. Timely response, correct documentation, and professional guidance go a long way in avoiding penalties and prolonged litigation
For any assistance in responding to income-tax notices or understanding return processing, tax-payers are advised to consult their tax advisor.