Closing by 31.03.2026: How to Resolve Your Section 143(2) Notice Issued in 2025 (Scrutiny Compliance Roadmap)
Section 143(2) Notice 2025: Mass Scrutiny Selection, Key Reasons (June 2025 Time-Bar), Foreign Remittance/Payments Outside India Triggers, and Step-by-Step Resolution Before 31.03.2026
Introduction
In mid-2025, the Income Tax Department issued a large number of notices under Section 143(2). These were scrutiny-selection notices issued to various persons across a wide range of topics. Importantly, scrutiny selection is not restricted to only a few themes (such as foreign remittance).
The legal trigger is broad: where the Assessing Officer (AO) / Prescribed Authority considers it necessary or expedient to ensure that the assessee has not understated income, computed excessive loss, or underpaid tax.
In this article, we first understand why these notices were issued and the broad topics covered in such notices. After that, we take one specific topic and discuss it in detail. Still, if you have any doubt, or your case is not covered in this article, you can freely contact me at the details mentioned at the end of this article.
To understand why a large number of notices were issued in June 2025, it is important to note that the limitation date for issuance of notice for A.Y. 2024–25 was 30.06.2025. Accordingly, the Department issued notices on a wide scale before the expiry of the prescribed time limit to ensure that cases identified for scrutiny/review were not rendered time-barred.
What are the main buckets on which cases get picked up for scrutiny (143(2))?
There is no closed, official “only these topics” list. But some of the topic is mentioned below due to which case is taken up:
These are not the “only” items, but they are frequently observed bases for selection and subsequent questionnaires (often u/s 142(1) after 143(2)), such as:
Mismatch: ITR vs AIS/26AS/TIS/SFT (income, TDS/TCS, high-value transactions)
Capital gains inconsistencies (equity/MF/property) vs reported data
Large cash deposits/withdrawals vs returned income profile
Turnover / profit anomalies (especially where GST/SFT signals don’t align)
Deductions/exemptions with higher risk flags (pattern/quantum inconsistencies)
Foreign remittance / cross-border transactions (one theme, not the only theme)
In this article, we will discuss one of the topics on which notice is issued, i.e., foreign payment / payment outside India.
Topic in Detail: Foreign Payment / Payment Outside India
1. Background: Why “Payments Made Outside India” Became a Frequent Trigger
During mid-2025, many taxpayers (individuals as well as businesses) began receiving Compliance Portal communications and/or statutory notices where one of the key flags was payment made outside India / foreign remittance / overseas card spend.
In most cases, the Department already had transaction visibility from third-party reporting and remittance compliance forms, and the notice was aimed at reconciling the transaction with returned income and the applicable tax / TDS / TCS position.
This broader scrutiny also aligns with the heightened policy focus on outward remittances and their governance under the Liberalised Remittance Scheme (LRS), with credible reporting indicating that the RBI/authorities were examining tighter controls to prevent misuse.
2. How the Department “Sees” Your Foreign Remittance: AIS + Third-Party Reporting
A key reason such notices became widespread is improved data capture and data matching in the Department’s systems—primarily through:
(A) Annual Information Statement (AIS)
AIS (Annual Information Statement) is increasingly being used as a consolidated repository of third-party information, including high-value transactions and cross-border indicators. In essence, AIS aggregates and presents information received by the Income-tax Department from multiple reporting sources, enabling the Department to centrally view, track, and risk-assess transactions based on data reported by banks, financial institutions, intermediaries, and other reporting entities.
(B) Remittance compliance forms under Rule 37BB (15CA / 15CB / 15CC)
For outward remittances, the compliance ecosystem typically involves:
Form 15CA (information to be furnished by the remitter online)
Form 15CB (CA certificate in specified cases)
Form 15CC (quarterly statement by Authorised Dealers)
These filings materially enhance traceability of outward remittances.
(C) SFT reporting for foreign currency transactions (Rule 114E)
Specified Financial Transaction (SFT) reporting also covers certain foreign-currency related transactions routed through authorised foreign exchange channels, subject to the applicable thresholds and prescribed reporting requirements. For instance, banks and other authorised dealers may be required to report to the Income-tax Department details of persons who purchase foreign currency through them, where such transactions fall within the reportable category as per the relevant SFT rules and limits.
(Practically, this is one of the pipelines through which high-value foreign exchange spends come into the tax data lake.)
3. Two Separate “Tax Lenses” Apply (and notices often mix them up)
Outward payment can trigger either (or both) of the following compliance lenses:
Lens 1: Individuals / LRS remittances (TCS + source of funds)
For resident individuals, outward remittances/spends are often under LRS and may attract TCS under section 206C(1G) (collected by the authorised dealer / seller of overseas tour package). Finance Act, 2025 highlights document notes that the threshold for TCS for LRS/tour package was increased from ₹7 lakh to ₹10 lakh, and also provides specific relief for education-loan-funded remittances.
Separately, RBI materials also clarify that overseas debit/credit card usage for permissible current account transactions is within the LRS framework.
Typical notice theme (Individuals):
“You spent/remitted X abroad; explain source and why it is not reflected in income/ITR.”
“AIS shows foreign remittance; reconcile with return and tax payment.”
“TCS credit exists/does not exist; explain mismatch.”
Lens 2: Businesses / professionals paying non-residents (Section 195 / DTAA / characterisation)
For payments to non-residents (services, subscriptions, software, royalty/FTS, commissions, etc.), the core issue is: Is the sum “chargeable to tax” in India? If yes, withholding under section 195 becomes relevant.
A fundamental Supreme Court principle is that section 195 withholding obligation arises only when the remittance is chargeable to tax under the Act—not merely because money is remitted outside India.
Further, for a large category of standard software payments (where there is no transfer of copyright), the Supreme Court in Engineering Analysis held that such payments do not constitute royalty in many common fact patterns.
Typical notice theme (Businesses):
“Foreign payment made; why no TDS u/s 195?”
“Provide agreements/invoices; justify nature as non-taxable / DTAA relief.”
“Why no Form 15CA/15CB / why incorrect part selected?”
4. What Notice You Receive Determines the Response Strategy
Typically, you will see one of the following:
Compliance Portal e-Verification / information request
This is often a “soft” verification—submit explanation and documents online. The Department’s Compliance Portal workflow is documented in the user manual.
Notice u/s 142(1) (information/documents)
Respond with complete reconciliation and documentary support.
Reassessment track u/s 148A(b) / 148 (where foreign remittance is used as “information”)
Here, procedural discipline becomes critical. A July 2025 Delhi High Court decision (reported) illustrates that where additions/amounts travel beyond what was put to the assessee in the show cause, reassessment action can be vulnerable.
5. Practical Checklist: Documents You Should Compile (works in 80%+ cases)
A. Universal documents (Individuals + Businesses)
Bank statements (remittance debit entries) + remittance advices / SWIFT confirmations
Beneficiary details (name, country, relationship/business rationale)
Purpose code / Form A2 / LRS declaration (as applicable)
AIS/TIS download + 26AS and reconciliation note
Source of funds working (capital build-up, savings, loan, sale of asset, withdrawals, etc.)
B. If it is an Individual LRS case (focus: source + TCS)
Proof of purpose: education invoices, medical bills, travel bookings, maintenance remittances, investments
TCS evidence: Form 27D/26AS reflection and mapping to remittance
Explanation of whether remittance falls within/over ₹10 lakh threshold for TCS collection (rule changed w.e.f. FY 2025-26)
C. If it is payment to a non-resident (focus: taxability + withholding)
Contract/PO, invoice, scope of services, deliverables, place of performance
TRC + Form 10F (for DTAA reliance), PE declaration where relevant
Withholding memo: taxability u/s 9 + DTAA article + rate + whether section 195 applies (GE India principle)
If software/subscription: analyse against Engineering Analysis fact matrix
Form 15CA acknowledgement + CA certificate 15CB (if applicable)
Closing Advice
It is my advice to always tackle the case through a professional. Still, if you handle it personally and don’t consult any CA, then you should prepare a reply that explains each and every detail, aligns with AIS and TIS, and explains in detail the source of the foreign remittance and the reason for the foreign remittance.
Conclusion
So far as foreign payments / payments made outside India are concerned, the Department’s capability to identify and match such transactions has significantly improved through AIS, Rule 37BB compliance forms (15CA/15CB/15CC) and SFT reporting. In practice, many notices arise because the transaction is visible in data systems but the return, AIS/TIS, TDS/TCS, or documentation trail is not properly reconciled or explained.
Therefore, the most important step for the taxpayer is to respond in a structured manner based on the type of notice received, and to ensure that the reply is supported by complete documentation—especially bank trail, purpose justification, AIS/TIS reconciliation, and source of funds. For individuals, the focus usually remains on source of remittance and TCS linkage; for businesses, it generally shifts to taxability, DTAA position, and withholding compliance under section 195, along with correct remittance reporting.
In short, a well-prepared, evidence-based reply aligned with AIS/TIS and supported by documentary proof will resolve a majority of cases efficiently and reduce the risk of escalation into deeper scrutiny or reassessment proceedings.
******
For any query, or if you face any issue in Income Tax or GST—especially in cases involving legal proceedings, notices, litigation, or demand matters—please feel free to contact us at the details mentioned below:
Mobile: +91-9818640458
Email: varunmukeshgupta96@gmail.com
Author Bio
