ITR Filing for FY2025-26: AIS Mismatches That Could Trigger An Income Tax Notice

The Annual Information Statement (AIS) was introduced to help taxpayers file more accurate income tax returns. However, a growing number of taxpayers are discovering that blindly relying on AIS can itself become a reason for receiving an income tax notice after filing.

The Income-Tax Department today operates on extensive data matching and automated reconciliation systems. Information reported by employers, banks, mutual funds, stockbrokers, property registrars and authorised dealers is continuously compared with disclosures made in the income tax return (ITR). As a result, even relatively small mismatches between AIS and the ITR can trigger automated compliance communications.

Broadly, the AIS is divided into five key categories. Says Neeraj Agarwala, Senior Partner, Nangia & Co LLP: “Tax deducted at sources (TDS)-related information is one of the most commonly mismatched areas. AIS captures income on which tax has been deducted at source, including salary, professional fees, interest income and property transactions. A frequent error made by taxpayers is reporting income net of TDS rather than the gross amount. This income should be disclosed inclusive of TDS, as reflected in AIS and Form 16/16A. Taxpayers should also ensure that the TDS claimed in the return aligns with the credit appearing in AIS. Any mismatch between reported income and TDS credit may trigger an automated communication or “nudge” from the tax department.”

Another important category relates to outward foreign remittances and foreign currency purchases. AIS may capture spending towards overseas travel, education, investments or remittances under the Liberalised Remittance Scheme (LRS). While these disclosures are largely informational, the tax department may use them to assess whether a taxpayer’s spending pattern is commensurate with reported income. Significant inconsistencies could potentially lead to scrutiny and requests for explanation regarding the source of funds.

AIS also includes Statement of Financial Transactions (SFT)-based reporting, which covers specified high-value transactions reported by third parties such as banks, mutual funds and brokerages. These may include dividend income, purchase and sale of securities, large cash deposits, credit card payments, mutual fund investments or property-related transactions. Since such entries are auto-reported, taxpayers should verify that the figures are complete and correctly attributed. Discrepancies between such transactions and reported income could lead to nudges for correction or examination in some cases.

For taxpayers registered under GST, AIS also contains turnover and purchase related information based on GST filings. The amount in GST returns is often used as a benchmark to assess business profits disclosed under the head profits and gains from business or profession. Variations between GST turnover and income reported in the tax return may invite questions from the department, particularly in cases of significant deviations.

“Lastly, AIS reflects tax payments and refund information, including advance tax, self-assessment tax and refunds issued during the year. Taxpayers should reconcile these entries carefully to ensure appropriate credit is claimed in the return. Errors in reporting tax payments or claiming excess credit may lead to demands or delayed refund processing,” says Agarwala.

A less discussed but equally important issue is incorrect reliance on incomplete AIS data. AIS is updated based on information received from multiple reporting entities and may not always reflect the entire financial year at the time a taxpayer begins return preparation. During the previous filing season, several taxpayers received compliance nudges after filing returns solely on the basis of AIS data that did not fully capture transactions reported towards the end of the financial year.

“The solution is straightforward. Treat AIS as a reconciliation tool, not as the sole source of truth. Salary income should be matched with Form 16, interest income with bank certificates, capital gains with broker statements, TDS credits with Form 26AS and property transactions with underlying documents. Taxpayers should also review AIS for duplicate, incorrect or unrelated entries and provide feedback through the portal wherever discrepancies are identified,” says Agarwala.

In an era of algorithm-driven tax administration, the biggest mistake is assuming that pre-filled information is necessarily complete or accurate. A carefully-reconciled return remains the most effective defence against post-filing notices.

FAQs

1. Does an AIS mismatch lead to an automatic income tax notice?

Not necessarily. Large mismatches in the information furnished in AIS and the details provided while filing ITR may result in automated notices/clarification requests generated by the Income Tax Department.

2. Should taxpayers base their ITR filing solely on AIS?

No. Taxpayers should use AIS as a reconciliation mechanism. Also, taxpayers should cross verify their income tax filing information with Form 16, Form 26AS, bank statements, broker statements and other related documents.

3. What action can I take if I see an incorrect entry in my AIS?

You can provide feedback on the Income Tax Department's website about duplicate entries, incorrect information or unrelated information and keep records of such supporting documents.