Commonly observed AIS mismatches that can Trigger Income Tax Notice

Commonly observed AIS mismatches that can trigger an income tax notice after ITR filing

With the Income-tax Department increasingly relying on automated data matching, artificial intelligence-based risk assessment, and system-driven verification processes, taxpayers are expected to ensure consistency between the information reported in their ITR and the records already available with the Department.

Taxpayers should not treat the Annual Information Statement (AIS) as the sole basis for filing their Income Tax Return (ITR), as the information reflected therein may at times be incomplete, duplicated, or subject to reporting errors. Instead, the details appearing in the AIS should be carefully reconciled with books of accounts, bank statements, Form 26AS, Form 16/16A, investment records, and other supporting financial documents before filing the return. Any discrepancy identified during such reconciliation should be appropriately examined and addressed through accurate disclosure in the ITR or supported with adequate documentation, wherever required, to minimise the risk of potential scrutiny or notices from the Income-tax Department.

Some of the commonly observed mismatches that may lead to scrutiny or post-filing notices may include:

• Salary income mismatch – Where salary income reported in the ITR differs from the salary disclosed in Form 16, TDS returns filed by the employer, or reflected in AIS, the department may seek clarification regarding any under-reporting of income.
• Interest income not reported – Interest earned on savings bank accounts, fixed deposits (FDs), recurring deposits (RDs), income tax refunds, etc. often appears in AIS based on reporting by banks and financial institutions. Non-disclosure or partial disclosure of such income in the ITR may result in a mismatch notice.
• TDS/TCS mismatch – Claiming excess Tax Deducted at Source (TDS) or Tax Collected at Source (TCS) credit that does not reconcile with Form 26AS or AIS may lead to adjustment of refund claims or issuance of a notice seeking justification.
• High-value financial transactions not disclosed – Transactions such as large mutual fund investments, purchase or sale of immovable property, substantial credit card payments, foreign remittances, or securities transactions reflected in AIS but not aligned with declared sources of income may attract scrutiny.
• Capital gains mismatch – Sale of shares, mutual funds, property, or other capital assets may be reported in AIS by intermediaries. However, incorrect computation or omission of capital gains in the ITR could trigger an inquiry.
• Business or professional receipts variance – Apart from AIS, turnover reflected through GST filings, TDS under business-related sections, or reported financial transactions that materially differ from income disclosed in the return may raise red flags. Where turnover reported in GST returns (such as GSTR-1 or GSTR-3B) is significantly higher than the turnover or gross receipts disclosed in the ITR, the tax department may identify the discrepancy through data matching mechanisms. Such differences may trigger scrutiny, particularly for businesses and professionals, unless adequately supported by valid reasons.