Got an Income Tax Notice? Your Consultant May Be the Reason

Over the past two years, the Income Tax Department has significantly increased scrutiny of individual tax returns, particularly those filed by salaried employees. Many taxpayers across Hyderabad have been receiving notices under Section 143(1) and Section 139(9). In a large number of these cases, the notice is not the taxpayer's fault. It is the direct result of an incorrect return filed by an unqualified tax consultant who either did not understand the new tax regime rules or had a financial incentive to inflate the refund. 

If you have received an income tax notice and someone else filed your return, there is a real possibility that your consultant made a serious error. This article explains what commonly goes wrong, why it happens, and what you should do if you find yourself in this situation. 

From FY 2023-24 onwards, the new tax regime became the default for all individual taxpayers. Under the new regime, most deductions available under the old regime are not permitted. This includes HRA exemption, Leave Travel Allowance, deductions under Section 80C for investments, Section 80D for health insurance premiums, and Section 80TTA for savings account interest. 

Many informal consultants continued filing returns claiming these deductions even after the regime change. Either they were unaware of the change or they did not check which regime applied to their client. The result is a return that claims deductions the taxpayer was never entitled to under the new regime. The Income Tax Department's system flags this and issues a notice demanding the tax with interest. 

Some consultants charge their fee as a percentage of the refund they generate for you. This is typically 10% to 30% of the refund amount. The problem with this arrangement is straightforward. A consultant who earns more when your refund is larger has a direct financial reason to maximise your refund regardless of whether you are actually entitled to it. 

They may claim deductions you cannot support, apply exemptions from the wrong regime, or include income incorrectly. You receive a refund, you are happy, and you pay their commission. Then months or years later the department processes your return more carefully and issues a notice. They ask for the excess refund back along with interest under Section 234B and 234C. The consultant is no longer reachable. You are left managing the consequences. 

We regularly receive calls from salaried professionals across Hyderabad who are dealing with exactly this situation. A common scenario we see is a salaried client whose consultant claimed 80C and 80D deductions under the new regime, generating a refund the client was not entitled to. When the notice arrived demanding the refund back with interest, the client had already spent the money and had no idea what had been filed in their name. 

In another typical case, HRA exemption was claimed for a client who genuinely paid rent but had opted for the new regime where HRA exemption is not available. The client was not at fault but still had to pay the demand with interest because the return was filed in their name. 

Act quickly. Income tax notices come with response deadlines. Missing the deadline makes the situation significantly worse. Do not respond to the notice yourself unless you are fully confident about what you are doing. Gather your Form 16, bank statements, and your original ITR acknowledgement and contact a qualified CA as soon as possible. 

Steps to take immediately:

• Note the section under which the notice is issued and the response deadline

• Do not ignore the notice or delay beyond the deadline

• Collect your Form 16, bank statements, and ITR acknowledgement

• Contact a qualified Chartered Accountant who was not involved in the original filing

• If the return is incorrect, a revised return or rectification may be needed along with payment of any shortfall

If the error is genuine and you act promptly and cooperate with the department, the situation can be resolved. The interest under Section 234B and 234C stops accumulating once the outstanding tax is paid. Acting early almost always reduces the total cost. 

The income tax filing market in India has many informal operators. Anyone can use tax software and call themselves a consultant. There is no certification required and no professional accountability if they make a mistake. A qualified Chartered Accountant is a licensed professional regulated by the Institute of Chartered Accountants of India. They have cleared one of the most rigorous professional examinations in the country and carry professional responsibility for their work. 

When choosing someone to file your return, ask them whether they are a qualified CA and whether they charge a percentage of your refund as their fee. A qualified CA charges a fixed professional fee for their work. If someone is charging you a commission on your refund, that is a warning sign worth taking seriously. 

At Obaid Khan & Associates, we handle income tax notice responses, ITR corrections, and tax demand matters for clients across Hyderabad. If you have received a notice or suspect your previous return was filed incorrectly, WhatsApp us with the notice details. We will assess your situation honestly and handle the response professionally. 

We also file ITR for salaried individuals, business owners, and NRIs with complete accuracy. We charge a fixed professional fee, we explain what we are filing before we submit, and we remain reachable throughout the process. 

CA Obaid Khan, FCA | 47th All India Rank | Ex-Deloitte | Obaid Khan & Associates, Hyderabad | WhatsApp: +91 9160091660 | www.caobaid.com