Whalesbook
Salaried taxpayers filing for AY 2026-27 are facing unexpected tax notices due to reporting errors. Key issues include failing to consolidate income from previous jobs, overstating investment deductions, and ignoring non-salary income. Taxpayers are advised to cross-check all data with their Annual Information Statement (AIS) and Form 26AS before filing to avoid interest charges and tax scrutiny.
What Happened
As the deadline for filing Income Tax Returns (ITR) for the Assessment Year 2026-27 approaches, many salaried taxpayers are receiving unexpected tax demands. These demands, often accompanied by interest charges, are frequently caused by simple reporting errors rather than intentional tax evasion. While many employees assume that the Tax Deducted at Source (TDS) deducted by their employer covers their entire tax liability, this assumption is often incorrect. Incomplete declarations or ignored income sources are leading to tax shortfalls that must be settled during the filing process.
The Hidden Risk of Employer Deductions
Many employees mistakenly believe that because their employer handles TDS, their tax return is fully accurate. However, an employer only calculates tax based on the information provided to them. If an employee has other sources of income—such as interest from savings accounts, dividend income, or rental earnings—the employer is unaware of these, and therefore, no tax is deducted on these amounts. If this additional income is not reported in the ITR, it leads to a gap between the tax paid and the tax actually owed. This gap is what the tax department identifies, leading to notices for unpaid tax plus interest.
Why Job Hopping Causes Tax Gaps
Changing jobs in the middle of a financial year is a major source of tax calculation errors. When an individual joins a new company, they often fail to share details of the salary earned from their previous employer. Consequently, the new employer calculates TDS as if the employee has had no other income during the year. This often results in a lower TDS deduction than what is actually required for the combined annual income. When the employee files their ITR, the total income is higher than what was accounted for by the employers, leading to a surprise tax bill.
The Danger of Inflating Investment Claims
To increase take-home pay, some employees inflate their tax-saving investment declarations at the beginning of the year. If these investments are not actually made or if the receipts are not submitted, the employer may recover the tax shortfall during the final payroll processing. However, if the recovery does not happen or if the employee claims deductions that are not supported by actual investments, it triggers a tax notice. It is essential to claim only those deductions that are backed by valid documents and proof of payment.
The Importance of AIS and Form 26AS
The Income Tax Department now provides detailed records of financial transactions in the Annual Information Statement (AIS) and Form 26AS. These documents contain a record of TDS, dividend payouts, interest earned, and large financial transactions. Taxpayers should treat these statements as the source of truth. Discrepancies between what is reported in the ITR and what is reflected in the AIS can lead to automated tax notices. It is highly recommended to wait for these statements to be fully updated before submitting the tax return.
What Taxpayers Should Track
Before hitting the submit button, taxpayers should ensure they have consolidated income statements from all employers during the year. They should also audit their investment proofs to ensure they match exactly what was declared to the employer. Finally, comparing every number in the tax return against the AIS and Form 26AS is the most effective way to identify potential errors before they become a source of stress. Paying advance tax on non-salary income, such as interest and dividends, throughout the year can also help avoid the shock of a large tax bill at the time of filing.