As the Income Tax Return (ITR) filing season for Assessment Year (AY) 2026–27 progresses, many taxpayers have recently received Section 143(2) notices from the Income Tax Department in relation to returns filed for AY 2025–26. While receiving such a notice may seem alarming, it is important to understand that a scrutiny notice does not automatically imply tax evasion, concealment of income, or any wrongdoing. It simply means that the Income Tax Department has selected your return for a detailed verification.

For Non-Resident Indians (NRIs), Overseas Citizens of India (OCIs), Returning Indians (RNORs), expatriates, and individuals with cross-border financial transactions, scrutiny assessments have become increasingly common due to the complexity of international tax reporting and the extensive use of technology by the Income Tax Department.

If your return involves the sale of property in India, capital gains, Double Taxation Avoidance Agreement (DTAA) benefits, Foreign Tax Credit (FTC), NRO/NRE accounts, overseas income, or significant refund claims, understanding the scrutiny process and responding appropriately becomes even more important.

What is a Section 143(2) Notice?

A notice under Section 143(2) of the Income-tax Act, 1961 (corresponding to Section 270 of the Income-tax Act, 2025) is issued when the Income Tax Department selects a return for scrutiny assessment.

The purpose of scrutiny is to verify whether:

• Income has been correctly reported.
• Capital gains have been accurately computed.
• Deductions and exemptions have been correctly claimed.
• Residential status has been correctly determined.
• Foreign Tax Credit (FTC) has been appropriately claimed.
• DTAA benefits have been correctly availed.
• Taxes have been correctly paid and disclosed.

A scrutiny notice is therefore a verification mechanism and not a conclusion that additional tax is payable.
 

My Income Tax Return Was Already Processed. Why Did I Still Receive a Section 143(2) Notice?

This is one of the most common questions taxpayers ask.

Many taxpayers assume that once an Income Tax Return has been processed under Section 143(1), the matter is closed. However, processing under Section 143(1) is only an automated preliminary check.

Even after your return has been processed or your refund has been issued, the Income Tax Department may subsequently select your return for scrutiny assessment under Section 143(2) if it considers further verification necessary. Therefore, receiving a scrutiny notice after processing is perfectly valid and does not, by itself, indicate any discrepancy.

Why Are NRIs More Likely to Receive Scrutiny Notices?

Compared to resident taxpayers, NRIs often have more complex financial affairs spanning multiple jurisdictions. Consequently, their returns may receive greater attention during risk assessment.

Some common reasons include:

• Sale of Property in India

The department may verify:

• Sale consideration.
• Cost of acquisition.
• Indexed cost of acquisition.
• Improvement expenses.
• Capital gains computation.
• Exemptions claimed.
• TDS deducted under Section 195.
• Foreign Tax Credit (FTC) Claims

Where foreign taxes have been claimed as credit in India, the department may seek verification of:

• Foreign tax returns.
• Foreign tax payment proofs.
• Form 67.
• Tax Residency Certificate (TRC).
• Form 10F.
• DTAA eligibility.
• High-Value Financial Transactions

Transactions commonly selected for verification include:

• Property purchases and sales.
• Large bank deposits.
• Mutual fund redemptions.
• Share transactions.
• High-value remittances.
• Overseas investments.
• Mismatch in AIS, Form 26AS or TIS

The Income Tax Department increasingly relies on information available in:

• Annual Information Statement (AIS).
• Form 26AS.
• Tax Information Statement (TIS).
• Statement of Financial Transactions (SFT).

Any mismatch between these records and the Income Tax Return may trigger scrutiny.

Incorrect Residential Status

An incorrect determination of residential status can significantly impact taxation of global income, DTAA eligibility and disclosure requirements. Residential status remains one of the most scrutinised aspects of NRI taxation.

How Does the Income Tax Department Select Returns for Scrutiny?

The Income Tax Department now uses advanced data analytics, artificial intelligence, risk management systems and information received from various reporting entities to identify returns requiring closer examination.

Returns may be selected based on:

• High-risk financial transactions.
• Significant capital gains.
• Large tax refund claims.
• Mismatches in reported income.
• Information received from banks and financial institutions.
• Property transactions.
• Cross-border transactions.
• Foreign Tax Credit claims.
• DTAA claims.
• Risk parameters prescribed by the CBDT.
• Random scrutiny selection in certain cases.

The Notice Does Not Mention the Exact Issue. What Should You Do?

Many taxpayers become anxious because the Section 143(2) notice itself often does not specify the exact issue under scrutiny.

This is entirely normal.

The notice merely informs you that your return has been selected for scrutiny. The detailed information, explanations or documents required are generally sought later through a Section 142(1) notice, which forms part of the assessment proceedings.

Why Have You Also Received an Intimation Under Section 144B?

Many taxpayers receiving a scrutiny notice also receive an intimation under Section 144B.

This relates to the Faceless Assessment Scheme, under which most scrutiny assessments are conducted electronically through the Income Tax e-Filing Portal.

Taxpayers generally do not need to visit the Income Tax Department physically. Notices, replies, supporting documents and communications are exchanged online, making the assessment process more transparent and efficient.

Documents Commonly Required During Scrutiny Assessment

Depending upon the issues involved, the Income Tax Department may request:

• Passport and travel history.
• Purchase and sale deeds.
• Capital gains computation.
• Bank statements.
• NRE and NRO account statements.
• Form 26AS.
• Annual Information Statement (AIS).
• Tax Information Statement (TIS).
• TDS certificates.
• Investment statements.
• Contract notes.
• Foreign tax returns.
• Foreign tax payment proofs.
• Form 67.
• Tax Residency Certificate (TRC).
• Form 10F.
• Rental agreements.
• Supporting documents for deductions and exemptions claimed.

Maintaining organised records significantly improves the quality of your response during assessment proceedings.

How Should You Respond to a Section 143(2) Notice?

A systematic response can substantially improve the outcome of scrutiny proceedings.

• Review the Notice Carefully
• Understand the assessment year, due dates and statutory references.
• Gather Supporting Documents
• Compile all relevant financial records before preparing your response.
• Prepare a Comprehensive Reply
• Each issue raised should be supported by documentary evidence and, where appropriate, legal provisions.
• Respond Within the Prescribed Timeline
• Most replies are submitted electronically through the Income Tax e-Filing Portal as part of the faceless assessment process.
• Maintain Complete Records
• Retain copies of notices, submissions and acknowledgements for future reference.

What Happens After a Section 143(2) Notice?

The assessment process generally follows these stages:

• Issue of Section 143(2) notice.
• Issue of Section 142(1) seeking information or documents.
• Submission of replies and supporting evidence.
• Examination by the Assessing Officer.
• Further clarifications, if required.
• Completion of assessment and issuance of the assessment order.

For complex NRI matters involving property sales, DTAA, Foreign Tax Credit or overseas income, multiple rounds of clarification may be required before the assessment is concluded.

What Happens If You Ignore the Notice?

Ignoring an Income Tax notice can have significant consequences.

These may include:

• Best judgment assessment.
• Additional tax demand.
• Interest liability.
• Penalty proceedings, where applicable.
• Delay or denial of refunds.
• Avoidable tax litigation.

Timely and well-supported responses are therefore essential.

What If You Discover an Error in Your Return?

Sometimes taxpayers realise during assessment proceedings that an income item has been omitted or a deduction has been incorrectly claimed.

Depending upon the facts and the applicable legal provisions, appropriate corrective action may still be possible. Seeking professional advice at an early stage can often help minimise disputes and ensure compliance with tax laws. In some cases, statutory relief provisions may also be available where conditions are satisfied.

How Dinesh Aarjav & Associates Can Help

Responding to an Income Tax notice requires much more than uploading documents. Effective representation involves analysing the legal issues, preparing technically sound submissions, supporting them with documentary evidence and ensuring timely compliance throughout the assessment process.

At Dinesh Aarjav & Associates, we provide comprehensive advisory and representation services for individuals, NRIs, Returning Indians, expatriates and businesses in relation to assessments and notices under both the Income-tax Act, 2025 and the Income-tax Act, 1961.

Our services include:

• Assessment and processing of returns under Section 270 of the Income-tax Act, 2025 (earlier Section 143 of the Income-tax Act, 1961).
• Income-escaping assessment matters under Section 279 (earlier Section 147).
• Reassessment proceedings under Section 280 (earlier Section 148).
• Rectification of apparent mistakes under Section 287 (earlier Section 154).
• Drafting and filing replies to Income Tax notices.
• Representation during scrutiny assessments and faceless assessment proceedings.
• Assistance with notices issued under Sections 142(1), 143(2), 147, 148 and other assessment-related provisions.
• Capital gains assessment relating to property sales, shares and mutual funds.
• Review and reconciliation of AIS, Form 26AS and TIS.
• Foreign Tax Credit (FTC) and DTAA advisory during assessment proceedings.
• Residential status determination for NRIs, RNORs and Returning Indians.
• Appeal support, submissions, documentation and end-to-end tax compliance coordination.

Our Chartered Accountants regularly assist clients across the United States, Canada, the United Kingdom, Australia, the UAE, Singapore and several other jurisdictions, providing practical solutions for complex Indian and cross-border tax matters.

Conclusion

A Section 143(2) Income Tax Notice should be viewed as an opportunity to substantiate the information disclosed in your Income Tax Return rather than as an indication of wrongdoing. Responding with complete documentation, accurate explanations and within the prescribed timelines is essential for a smooth assessment process.

If you have received an Income Tax notice, require assistance with scrutiny assessments, reassessment proceedings, rectification applications, appeals, or need professional representation before the Income Tax Department, Dinesh Aarjav & Associates can provide end-to-end support to help you navigate the assessment process with confidence.

Also Read:

• URGENT: Income Tax Notice for Foreign Assets, 401(k), RSUs or Overseas Accounts?
• NRI Income Tax Notices in India: Sections 142(1), 133(6), 148, 143(2) & 131(1A)
• Understanding the Surge in Income Tax Notices: What You Need to Know
• TDS deducted, ITRs not filed? Expect an Income Tax Notice Soon!