How To Respond To A 'Defective Return' Notice In Specific Situations?

If the Assessing Officer (AO) deems your Income Tax Return (ITR) as 'defective' under section 139(9) of the Income Tax Act, 1961, you may receive a notice. For example, if there's a discrepancy in the spelling of your name between your PAN card and the ITR form, your ITR may be labelled as defective, leading to the issuance of a notice by the Income Tax Department (ITD). While receiving a notice from the ITD can be unsettling, rectifying the issue with a defective ITR is a straightforward process. Here's how you can address the problem.

What Is A Defective Return? 

A defective return refers to an ITR that contains errors, omissions, or inaccuracies, making it incomplete or incorrect. When an individual or entity files their ITR, it is expected to be accurate and comprehensive, reflecting their true financial situation for the relevant assessment year.

Abhishek Soni, CEO, Tax2Win, an Income Tax portal, said, “If the tax authorities identify any mistakes or missing information in a filed return, they may issue a notice of defective return under section 139(9) of the IT Act. This notice aims to inform the taxpayer about the identified issues and provide an opportunity to rectify them within the specified time. This corrective measure is essential to ensure that the tax return accurately reflects the taxpayer's income, deductions, and other relevant details.” 

When Can Your Return Be Termed As Defective?

To avoid defects in your income tax return, paying close attention to various aspects of the filing process is crucial. Here are some key points to address to prevent mismatches and ensure a smooth filing experience:

Complete ITR: Make sure to accurately fill out all the mandatory annexures, statements, and columns in the income tax return. For instance, details in the schedule under deduction u/s 80G should be correctly filled. Double-check that all the required information is provided to avoid an incomplete return.

Provide Comprehensive Tax Information: Pay your taxes with interest before filing, and ensure that you provide accurate details such as the Basic Statistical Return (BSR) code, date of challan, and challan serial number. This will help avoid discrepancies in the tax payment information and the financial year and assessment year to be checked. 

Verify Tax Payment Matching: Ensure that the tax paid matches the tax payable in the return and that all applicable taxes are paid in full. Any discrepancies may lead to issues with the processing of your return.

Address Presumptive Taxation Scheme Errors: For ITR 4, if presumptive income is less than eight per cent or six per cent of turnover, consider filing ITR 3. Provide accurate information such as gross receipts in the profit & loss account or correctly show income u/s 44AD in ITR 4.

Stay Informed About Increased Limits: Be aware of any changes in tax regulations, such as the increased limits in Budget 2023 for sections 44AD and 44ADA. Ensure that your filing aligns with the updated thresholds.

Maintain Proper Books Of Accounts: Fill in details from regular books of account, including Balance Sheets and Profit and Loss statements, in your return. Accurate financial documentation is essential for a transparent and error-free filing.

Include Income Details With Tax Deducted At Source Claims: Provide comprehensive income details when claiming a refund for deducted tax (TDS). This ensures that your claim aligns with the income declared in the return.

Address Income Tax Audit Requirements: If your books of accounts have been audited, include a copy of the audit report and audited financial statements with your return. This is essential for compliance with income tax audit requirements.

Cost Audit Compliance: If your entity is required to conduct a cost audit, ensure that detailed information is provided. Failure to comply with cost audit requirements can lead to defects in your return.

How To Respond To A Defective Return Notice?

To rectify the defects highlighted by the ITD, it is crucial to revise your return or rectify the defect within the stipulated 15-day timeframe. If you find it challenging to complete the revisions within this period, you can apply for an extension.

“Failure to rectify the defects within the initial 15 days or any extended period granted may result in the classification of your return as invalid. Consequences of an invalid return may include interest charges, penalties, non-carry forward of losses, and forfeiture of specific exemptions. To navigate these situations effectively, consider seeking assistance from online tax experts who can guide responding to and handling these notices. Their expertise can prove invaluable in ensuring compliance and minimizing potential financial repercussions,” Soni added.