Holiday Plans Interrupted By A Tax Notice? Act Now To Fix Errors Before Penalties Kick In

Suppose you have packed your bags and are about to head to Manali in an hour or two for New Year celebrations, or you are enjoying Christmas with family and friends at a hotel in Jim Corbett. Suddenly, a notice from the Income Tax Department lands in your inbox, seeking details of income and deductions claimed in your tax return. How would you react?

This is not a figment of imagination. Thousands of taxpayers across the country are already facing this situation. Over the past few months, the Income Tax Department has been issuing notices to individuals who claimed fake, inflated, or incorrect deductions, particularly under Section 80G, which allows tax benefits on donations made to charitable institutions.

So why is this happening now, and what should taxpayers who have received such notices do?

Why Cases Are Being Flagged

According to tax experts, these notices are being sent because the Income Tax Department has strengthened its data-matching and risk-assessment systems.

Maneesh Bawa, Partner, Nangia Global, says, “Using risk analytics, cases for AY 2025–26 are being been flagged by tax authorities in case of taxpayers who may have claimed ineligible deductions or exemptions vis-à-vis information filed by employer in Form 16/26AS or due to omission of reporting capital gains on sale of shares/mutual funds but reflected in AIS, thereby leading to underreported income/excess refunds.”

The NUDGE campaign, run by the CBDT, is sending reminders to identified taxpayers via SMS and email, encouraging them to voluntarily identify and rectify these errors/mismatches by filing revised returns before 31 December 2025.

“Donations claimed in ITRs are also now cross-verified with details reported by charitable trusts, bank transactions, PAN records, and past filing patterns. If the donation claimed does not match the data available with the department, or if the trust is found to be non-genuine, a notice is triggered,” says CA Abhishek Soni, CEO & Co-founder, Tax2win.

Such notices usually mean that the department has identified a mismatch, suspicious entry, or unverifiable deduction. In many cases, taxpayers unknowingly claimed deductions based on fake receipts issued by agents or unregistered institutions. “Claiming deductions without actually making the donation or without proper proof can attract penalties and additional tax demand,” adds Soni.

Shubham Jain, Director, SVAS Business Advisors, says, “What we are currently witnessing is a calibrated, data-driven compliance push by the Income tax department rather than a blanket scrutiny exercise. Using AIS, TIS and third party data, the department has flagged cases where refunds are unusually high, largely due to incorrect income classification, inflated deductions, or questionable donation claims. Many such issues stem from aggressive tax planning, poor advice, or over reliance on automated return filing platforms that prioritize refunds over accuracy.”

For AY 2024-25, taxpayers are being guided towards filing an updated return, while for AY 2025-26, the emphasis is on revised returns (the last date of which is 31 Dec 2025). “This is deliberate. A revised return allows genuine mistakes to be corrected without penal impact, whereas an updated return generally involves additional tax,” informs Jain.

What Should Taxpayers Do?

Tax experts advise taxpayers not to panic, but also not ignore these communications.

The first step is to carefully reconcile the return filed with AIS and TIS data, re-examine deductions claimed, especially under sections relating to donations and exemptions, and verify income classification.

“If an error is identified, a timely revised or updated return is often the most cost effective and risk mitigating response. If the claim is genuine and fully supported by documentation, the taxpayer should be prepared to stand by it,” says Jain.

If you receive a tax notice related to donation, first, verify whether the donation was actually made and whether the charitable institution is registered and eligible under Section 80G.

“Check receipts, bank statements, and the trust’s registration details. If the claim is incorrect, file a revised return or respond honestly to the notice and pay the applicable tax to reduce penalties. If the claim is genuine, submit proper documentary evidence within the deadline,” suggests Soni.

This phase, however, marks a shift from reactive scrutiny to preventive compliance. Those who respond proactively, transparently and with proper professional guidance will be far better placed than those who delay or assume that these emails can be disregarded. “In the current environment, accuracy and substance matter rather than aggressive refund-driven tax planning,” informs Jain.

What If Return Is Not Revised By Due Date?

As a consequence of failure to revise returns (if required), taxpayers may face delay in refund processing and/or detailed scrutiny particularly in cases having errors or missing information that have resulted in incorrect/ excess refund claims.

Additionally, if the return is processed after the due date for filing the revised return has expired, taxpayers may receive an intimation highlighting errors or data mismatches, without the option to modify the return.

“Taxpayers will be left with the only option to file an updated return from 1 January 2026, subject to additional tax liability. Taxpayers may resort to filing a rectification request in cases where any disclosures made in the income tax form are incorrect and such a change would not result in any change in the overall income declared in the original return,” says Bawa.