Income Tax AIS Notice Alert
A practical guide for taxpayers on understanding, identifying, and resolving discrepancies in the Annual Information Statement before they attract scrutiny from the Income Tax Department.
Assessment Year 2024–25 Tax Compliance 7 min read
The Annual Information Statement (AIS) is a comprehensive document issued by the Income Tax Department that aggregates financial transactions reported by third parties — banks, brokers, registrars, employers, and others — against a taxpayer’s PAN. When information in the AIS does not match what is declared in the Income Tax Return (ITR), the department’s risk engine flags the discrepancy, often resulting in a statutory notice under Section 139(9), 143(1), 142(1), or 148A of the Income Tax Act.
Section 01
What Is the AIS and Why Does It Matter?
Introduced by the CBDT in 2021, the AIS replaced the older Form 26AS as the primary data aggregator for taxpayer financial activity. It captures over 50 categories of transactions — from salary and interest income to mutual fund redemptions, foreign remittances, and property transactions — all sourced from Statement of Financial Transactions (SFT) filers and TDS/TCS deductors.
Because the AIS feeds directly into the pre-filled ITR, any omission or incorrect reporting in the return is immediately visible to the assessing officer during processing. The department now routinely uses data analytics and AI-driven tools to compare AIS data with filed returns, making mismatches increasingly difficult to overlook.
Section 02
The Most Common AIS Mismatches That Attract Notices
The following categories represent the most frequently observed sources of discrepancy between AIS data and filed returns:
- Interest income not reported in ITR
Banks report interest paid on savings accounts, fixed deposits, and recurring deposits to the Income Tax Department via SFT-016. Taxpayers often overlook interest from multiple accounts or small FDs, especially those held at cooperative banks or post offices. Even interest that did not attract TDS is captured in AIS and must be declared under “Income from Other Sources.”
- Capital gains from securities and mutual funds
Brokers and mutual fund houses report purchase and redemption details through SFT-018 and SFT-011. A mismatch arises when taxpayers omit short-term or long-term gains, apply incorrect cost of acquisition, or do not account for tax-exempt long-term gains exceeding ₹1 lakh. Grandfathering provisions under Section 112A further complicate accurate reporting.
- Property sale or purchase transactions
Registrars file SFT-012 for property purchases above ₹30 lakh. The AIS captures both buyer and seller details. Sellers who fail to disclose capital gains — including the benefit of indexation, Section 54, or Section 54EC exemptions — or buyers who cannot explain the source of funds find themselves under notice. Underreporting the sale consideration vis-à-vis stamp duty valuation is another common trigger.
- Dividend income discrepancy
Post the removal of the Dividend Distribution Tax in FY 2020–21, dividends received from domestic companies became fully taxable in the hands of shareholders. Companies now deduct TDS under Section 194 and report dividends to the department. Taxpayers who hold shares across multiple folios or received dividends from several companies often miss declaring the total correctly, especially when amounts appear small individually.
- TDS credit claimed does not match Form 26AS / AIS
When the TDS amount reflected in AIS differs from what is claimed in the ITR — either due to incorrect PAN quoting by the deductor, timing differences, or data entry errors in the return — the system raises an automatic mismatch. This also occurs when a deductor has not filed their TDS return, leaving credit unacknowledged in the taxpayer’s AIS.
- High-value cash deposits or withdrawals
Banks file SFT-005 for cash deposits above ₹10 lakh in savings accounts and SFT-006 for time deposits above ₹10 lakh in a financial year. If these deposits are not reconciled with the declared income or explained through previous year savings, agricultural income, or gifts, the department may issue a notice under Section 148A seeking details of the source of funds.
- Foreign remittances under Liberalised Remittance Scheme (LRS)
Authorised dealer banks report outward foreign remittances under LRS through SFT-014. Remittances for travel, education abroad, property purchases, or overseas investments are captured. The department cross-checks these with declared income to ensure the taxpayer had adequate means. Since FY 2023–24, TCS at 20% on most LRS remittances has made this data more granular.
- Business turnover mismatch with GST returns
The department now has access to GST return data and cross-references GSTR-1 and GSTR-3B figures against turnover declared in the ITR under “Profits and Gains from Business or Profession.” Professionals and small businesses that underreport revenue in ITR while reporting higher figures in GST filings face scrutiny. The reverse — higher ITR income, lower GST turnover — can also raise questions.
- High-value credit card spends
Banks report credit card payments above ₹1 lakh in a single transaction or ₹10 lakh cumulatively in a year via SFT-007. When credit card expenditure is disproportionate to declared income, the assessing officer may question the source of funds used to make such payments, particularly for taxpayers with modest declared income.
- Virtual digital asset (VDA / crypto) transactions
Following the taxation framework for VDAs introduced from FY 2022–23, crypto exchanges registered in India are required to deduct TDS under Section 194S at 1% and report transactions. Taxpayers who trade on Indian exchanges and fail to declare gains at the flat 30% rate, or who offset VDA losses against other income, risk attracting notices. Offshore exchange transactions are also under increasing scrutiny.
Section 03
Why Mismatches Occur: Root Causes
Understanding the origin of a discrepancy helps in formulating the right response. The most frequent root causes include:
Reporting errors by third parties — Deductors or SFT filers sometimes quote an incorrect PAN, report figures in the wrong financial year, or double-report a transaction. The taxpayer is not at fault but still must respond.
Multiple income sources overlooked — Individuals with income from interest, freelancing, rental, or investments across multiple institutions often miss consolidating all sources before filing.
Incorrect ITR form selection — Filing ITR-1 when ITR-2 or ITR-3 is applicable (e.g., having capital gains) results in inherent mismatches at the form level.
Unawareness of AIS data — Many taxpayers file returns without first reviewing their AIS on the compliance portal, leading to omissions that could have been easily caught.
Important: Receiving a notice does not automatically mean a demand or penalty. Many notices are merely seeking clarification or confirmation. However, ignoring or not responding within the stipulated time frame can escalate to best judgement assessment under Section 144, which may result in an addition to income and penal interest under Sections 234A, 234B, and 234C.
Section 04
How to Respond and Rectify AIS Mismatches
The Income Tax Portal allows taxpayers to submit feedback on each AIS transaction, marking it as “Information is correct,” “Information is not fully correct,” “Information relates to another PAN / year,” or “Information is duplicate.” This feedback does not automatically amend the ITR but creates a documented trail.
If the return has already been filed with omissions, the taxpayer should consider filing a revised return under Section 139(5) before the due date, or an updated return under Section 139(8A) within 24 months of the end of the relevant assessment year, subject to payment of additional tax.
Step 1. Download and review your AIS and Taxpayer Information Summary (TIS) before filing your ITR each year.
Step 2. Submit feedback on the AIS portal for any erroneous or duplicate entries before or after filing.
Step 3. File a revised or updated return if genuine income was inadvertently omitted from the original filing.
Step 4. Respond to any notice on the compliance portal within the time stated, with supporting documents.
Conclusion
The AIS represents a significant leap in the Income Tax Department’s ability to track financial activity across the economy. For taxpayers, it is both a compliance tool and an early-warning system. Reviewing the AIS before every filing, reconciling all data sources, and responding promptly to any discrepancy is no longer optional — it is an essential part of responsible tax compliance. When in doubt, consult a qualified chartered accountant or tax advisor before responding to a notice.
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