Income Tax Notice Proposed Adjustment: Meaning, Reasons, & Response

Today’s topic: Income Tax Notice Proposed Adjustment

An Income Tax Notice Proposed Adjustment is an auto-generated notice that is sent by the Centralized Processing Centre (CPC) in case the CPC notices discrepancies in your tax return.

This particular notice comes under Section 143(1)(a) of the Income-tax Act, 1961, which means that the tax department wants to make adjustments in the tax return you submitted, which are yet to be finalized (Income-tax Act, 1961).

Getting an income tax notice proposing an adjustment doesn’t imply that you are in a tight spot.

No, it simply gives you a 30-day notice to accept the adjustments or give reasons why you submitted the original tax return. Knowing the income tax notice’s proposed adjustments’ meaning can save you from unwanted tax notices and refunds.

We will be discussing the following in this article:

• Preliminary Warning: The contents of this notice are not a final tax notice at this stage.
• Automated System: The computer system identifies matches and mere arithmetic calculations.
• Thirty-Day Deadline: Tax filers are supposed to respond online within a mandatory 30-day period.
• Legal Power: The legal power behind the proposed change is provided under Section 143(1)(a).
• Comparison Phase: The comparison phase matches all your data with Form 26AS records.
• Response Options: You agree, somewhat agree, or disagree with changes.
• Risk Mitigation: Correct responses aid in the evasion of additional tax or refund loss.
• Electronic Filing: All filings shall be made through the e-Proceedings portal.
• Error Detection: This notice would flag discrepancies that may happen prior to the final processing.
• Data Verification: Official records, including AIS, are matched.

What Is An Income Tax Proposed Adjustment Notice?

An Income Tax Notice Proposed Adjustment acts as an early warning in the processing of your tax return, which means the calculations of the department are different from yours. This gives you an opportunity to make amends before a final tax order is passed.

Differentiating Proposed Adjustment From Final Demand

This is different from a Section 156 demand notice, which is purely a proposal. The department identifies an adjustment discrepancy that involves an income tax notice and requests your input prior to adjusting your refund or tax liability.

The Role Of Section 143(1)(a)

The following section grants the CPC the right to adjust your income for arithmetical errors or incorrect claims. This is just a no-escape procedural requirement to ensure that the “Intimation” you eventually get is correct and based on verified data.

Legal Basis: Section 143(1)(a) Of The Income-Tax Act

A significant history of the Income Tax Notice Proposed Adjustment stems from the need of the government to have accurate data processing.

It seems that the law provides for informing the taxpayer of the intentions to alter their income and deduction amounts.

It allows the department to make an adjustment where there appears to be an error, such as an incorrect claim of expenses or an error in TDS credits.

The meaning of the notice under the Income Tax Act of proposing an adjustment is the “show-cause” remedy given by the Act.

Time Limits For Issuance

The department needs to send this notice within nine months from the end of the Financial Year in which you submitted the return.

Remaining conscious about this timeframe is important so that you can keep a check on your e-filing portal for this pending activity.

Why Is A Proposed Adjustment Notice Issued?

There are a number of typical Income Tax Notice Proposed Adjustment triggers. These are most commonly due to straightforward data-entry inaccuracies or missed third-party obligations, including the Annual Information Statement.

Errors And Incorrect Statements With Arithmetic

An error in simple arithmetic calculations in the ITR can generate a notice. It is very often noticed that a deduction of Section 80C/80G in excess of what is sustainable based on the uploaded documents can generate a proposal for a disallowance.

Mismatch With Third-Party Data

In most cases, the cause of an Income Tax Notice Proposed Adjustment could be a mismatch between the Figures in Form 26AS/16 and your return filing. When you have higher TDS, as maintained in the department’s records, the discrepancy would be shown immediately.

Carry-Forward Losses And Statutory Disallow

If you file your tax return past the deadline, you may lose your entitlement to claim some losses. 

The CPC will make a proposal to waive these losses if your filing date is not statutorily compliant.

Read Also: What Is OASDI? A Complete Guide To Your Social Security Benefits

How To Respond To A Proposed Adjustment Notice?

Responding to an Income Tax Notice Proposed Adjustment is completely online. One does not have to go to any tax office, but respond to the notice through the e-Proceedings facility on the official portal.

Choosing Your Response Type

You have three choices to tick: Agree, Partially Agree, or Disagree. If you agree with the Proposed Adjustment in the Income Tax Notice, the system will re-calculate your tax.

However, if you disagree, you must state in detail the grounds for disagreement and evidence.

Attachment Of Supporting Evidence

In case you disagree with the proposed change, upload scanned copies of your investment proofs, rent receipts, or salary slips.

The clearest documentation will facilitate the quick resolution of a discrepancy to secure your refund.

After Responding: What Happens Next?

Once you submit your response to the Income Tax Notice for a Proposed Adjustment, it goes under review at the CPC.

During this stage, either your original return stands, or the tax department will issue a final adjustment.

Final Intimation Under Section 143(1)

Once this review is complete, you will be issued a final “Intimation” notice. This will contain your final calculation of tax, including any accepted changes or your original figures if your explanation was satisfactory.

Demand Notice Versus Refund

In case the finalized Income Tax Notice Proposed Adjustment results in a higher tax liability, the intimation works as a demand notice under Section 156.

On the other hand, if issues are resolved, your refund will be processed and credited to your bank account.

Common Mistakes & How to Avoid Them

Preventing an Income Tax Notice Proposed Adjustment. Proposed adjustments can happen even before you click on “submit” on your return.

However, most income tax notices can be prevented with good cross-verification.

Ignoring Form 26AS And AIS

The returns filed by taxpayers are usually based on the data maintained by taxpayers themselves without resorting to the AIS or the Form 26ASS.

Ensure that the filed ITR is consistent with the pre-filled information from the department to avoid an Income Tax Notice Proposed Adjustment.

Missing The Response Deadline

The first mistake would be failing to acknowledge the notice.

If that happens, the Canadian tax authority will automatically finalize the proposed adjustment in the income tax notice after 30 days.

That would mean that taxpayers end up with a lower refund amount.

Read Also: Are Lawsuits Taxable? Things You Don’t Know But You Should!

Frequently Asked Questions (FAQs):

An Income Tax Notice Proposed Adjustment is not an insurmountable part of modern tax filing. It’s a bridge between your initial submission and final processing to help catch errors. 

By understanding what the income tax notice proposed adjustment means, you will take speedy action to protect your financial interest.

Always respond within the 30-day window of notices, and keep your documentation ready to resolve any discrepancies with ease.