Income Tax Notice Under Section 148A - A Master Guide

Receiving an income tax notice under section 148A is nothing to be scared of. It is just the tax authorities' way of telling you that "We have information suggesting you have escaped assessment in the previous year. Before we repeat that year formally, we would like to give you a chance to explain."

For context, Sections 147 to 151 of the IT Act deal with provisions related to income that escapes assessment. Whenever the income tax department assessing officer (AO) has reasons to believe that an income has not been disclosed in the ITR, he/she can conduct an assessment, irrespective of whether the return is filed or not. This is known as income escaping assessment.

Now, Section 148A provides the taxpayer with an opportunity to explain their stance on whether an income escaping assessment is required. This is a show-cause notice and is used to notify the assessee, providing them with an opportunity to respond to the notice within a specified timeline, which is certainly 7 to 30 days.

In this blog, we will examine in detail the meaning of the notice under section 148A, how to respond to it, why such a notice is issued, the consequences, NRI considerations, and much more.

What Is Section 148A Of The Income Tax Act?

Section 148A of the Income-tax Act prescribes the mandatory pre-notice procedure that the Assessing Officer must generally follow before issuing a notice under Section 148, except in cases specifically excluded under the Act. In the 2021 Budget, the government of India introduced Section 148A to the Income-tax Act. Now, the support for the income tax officer indicates that you, as a taxpayer, have exhausted any income for any assessment year on which tax is payable. In such a case, Section 148A will require the income tax officer to first give you a chance to explain your case before issuing any notice.

In a nutshell, under section 148A, the assessee gets the chance to be heard by the officer.

After evaluating the taxpayer's reply, the income tax officer must decide whether to proceed with the income escaping assessment. If, by any chance, the IT officer decides to reopen the case, a copy of the order and a Notice Under Section 148 must be issued to the taxpayer.

With respect to the limitation clause, a notice that the taxpayer cannot be issued in normal circumstances if three years have elapsed since the end of the relevant assessment year. However, the notice beyond the three assessment years can be taken up only if there is solid evidence that the taxpayer has evaded an assessment of taxable income of at least Rs 50 lakh. Generally, a notice cannot be issued after three years from the end of the relevant assessment year. However, in cases covered under Section 149, where the prescribed conditions are satisfied, a notice may be issued up to ten years from the end of the relevant assessment year.

The income tax office must obtain the approval of the specified authority before conducting any such inquiries, providing the taxpayer with an opportunity, or passing such an order.

Ensure that none of the above applies to search or requisition cases.

Why Is An Income Tax Notice Under Section 148 Issued?

The income tax department issues a Section 148A notice when it has credible information indicating that income is chargeable to tax as an escape of assessment in a particular year. Common reasons include:

Financial Information Triggers:

• A large cash deposit, withdrawal, or other transfers that are not reflected in your ITR.
• The high-value property transaction, purchase, or sale is inconsistent with declared income.
• Any significant foreign remittances, inward or outward, that are not explained in the return you have filed.
• Investments in mutual funds, securities, or other assets disproportionate to declared income.

Return-Related Issues

• The income declared in one year appears to relate to a different year.
• Deductions or exemptions claimed that appear incorrect on further examinations
• Non-filing of the ITR despite having a taxable transaction on the records.

Third Party Reporting

• FATCA/CRS data received through international information exchange mechanisms showing overseas income or assets.
• The statement of financial transactions (SFT) is reported by banks, registrars, or financial institutions.
• Information received from other government agencies or investigative wings.

For NRIs, one of the most common issues is the undisclosed foreign bank account assets, explained remittances, and residential status disputes, where the global income may have been taxable in India for a particular year.

How to Respond To A Notice Under Section 148A Notice

Your response to a Section 148A(b) notice is the most important opportunity in this entire process. A well-prepared, documented response can result in the matter being dropped entirely without any reassessment proceedings.

Step 1: Read The Notice Carefully

The notice will specify the assessment year, the relevant information, or the transaction the department is relying on, and the deadline for your response. Understand exactly what is being questioned before drafting your reply.

Step 2: Gather Your Documents

You must collect all the required documents to explain the income transitions in question.

• The ITR Copy and compilation for the relevant year.
• Form 26AS and AIS for that year.
• Bank statements showing the source or nature of the transaction.
• For property transactions, the sale deed, the purchase agreement, and the capital gains computation.
• For NRIs, passport copies, TRC, Form 10F, SWIFT records, and foreign bank statements.

Step 3: Draft A Factual & Focused Response

Address the specific issues raised, nothing more or less. If the notice questions you about bank credits, just explain it clearly: salary, gifts, loan repayments, repatriation of own funds, and property sale proceeds. Attach supporting documents for every point you make.

Step 4: Submit Through e-Proceedings

Log in to incometax.gov.in, go to pending actions > e-proceedings, locate the section 148A notice, and submit the response. Upload your written reply and all the supporting documents as PDFs. Save this acknowledgment.

An essential point: Please do not treat a section 148A notice lightly, as it is only a show-cause notice. Your response here will determine whether the matter escalates to a full reassessment. A weak or incomplete response increases the likelihood that the AO will conclude that reassessment is warranted.

For NRIs and anyone dealing with such complex transactions, professional assistance at this stage is strongly advisable.

Time Limit Under Section 148A Of The Income Tax Act

Section 148A has a specific time limit at both the response state and the order stage.

Reassessment time limit under Section 149 (applicable to Section 148(d) and others).

The extended limitation period of up to ten years applies only in cases covered under Section 149 where the prescribed conditions, including the applicable monetary threshold, are satisfied. This can be particularly relevant for NRIs with foreign assets or large remittances that may not have been properly disclosed.

A Flag For Legal verification: The time limits under Section 149 were amended by the Finance Act 2021 and further clarified through the subsequent CBDT circulars. Always verify the applicable limitation period for your specific assessment year, particularly for notices relating to years before AY 2021-22, where the transitional provision might apply.

The Consequences For Not Responding To A Section 148A Notice.

The following consequences may apply to you if you fail to respond to a notice under Section 148A by the deadline.

• Ex-Parte Assessment Order: If you, as the taxpayer, do not file a reply to the notice within the stipulated time, the Assessing Officer (AO) has the authority to roll out an ex parte assessment order. Which means that the AO will complete the tax return assessment based on the information they may not consider the taxpayer's perspective, potentially resulting in a higher tax liability.
• Applicable Tax Demand, Interest & Other Consequences: If you fail to respond, the Assessing Officer may proceed based on the information available on record. Depending on the outcome of the reassessment, additional tax, applicable interest, and other consequences under the Income-tax Act may arise.
• Initiation of Prosecution Proceedings: In certain cases where non-compliance with the notices appears to be intentional, specifically involving the deliberate concealment of income or the provision of inaccurate information, the income tax department may initiate prosecution proceedings. A conviction can result in rigorous imprisonment for a term ranging from six months to seven years, along with fines, depending on the severity of the offense.

To ensure comprehensive financial management and compliance with the notice, you may seek assistance from a CA who is well-versed in cross-border taxation and Indian tax laws.

Considerations For NRIs Receiving A Section 148A Notice

In recent times, NRIs are increasingly receiving Section 148A notices, driven largely by FATCA and CRS data-sharing between countries, which gives the Indian tax department visibility into overseas bank accounts, investments, and the assets held by Indian residents and NRIs.

• FATCA/CRS Triggered Notices: As an NRI, if you hold a foreign bank account, overseas investment, or foreign property that has not been disclosed in your ITR and your FTIN (Foreign Tax Identification Number ) or the passport is linked to your account, the tax department may have received this information through the automatic exchange mechanisms being in place. A Section 148A notice is way more common than you think.
• Residential Status Is Critical: Many 148A notices to NRIs are, in fact, residential-status disputes. If the tax department determines that you were a Resident rather than an NRI in a particular year, your global income for that year becomes taxable in India. Your passport travel history, visa documentation, and your overseas employment records are your primary evidence.

Things To Consider Before Replying To A Notice Under Section 148

The following are the tips that you must consider while responding to a Notice under Section 148.

1. Verify the authenticity of the notice by checking the issuing authority. You must do this by following these steps.
• Access the Income Tax Department's E-filing portal.
• Go to the Authentication Section: On the homepage, locate the "Authenticate " option/Order Issued by the ITD under the "Quick Links" section.
• Provide the necessary details. You can authenticate the Income Tax Notice either using your Documents Identification Number (DIN) or by entering the DIN along with your mobile number. Or by providing details such as your PAN and assessment year. document type, issue date, and mobile number.
• You can also verify through OTP, after entering the required information, an OTP will be sent to your mobile number. Enter the OTP and complete the verification process.
2. File a response within the given deadline to avoid any penalties being imposed on you.
3. Submit the supporting documents to justify the reported income.
4. You must consult a tax professional if the notice feels complex or involves any high-value transactions.

The Bottom Line

A notice under Section 148A is part of the Income Tax Department's procedure to provide taxpayers with an opportunity to explain their case before reassessment proceedings are initiated under Section 148.

The key point is that Section 148A of the Income Tax Act was designed to protect taxpayers. Use it well. A formally opposed document presented at the show cause stage can and will regularly result in the matter being dropped entirely.

For NRIs, the notice generally relates to foreign asset disclosure, which includes FATCA/CRS data, and to residential states, where proper documentation and a clear understanding of your legal position are essential. Please do not respond to the notice under 148A casually in the air; you have to be professional and provide a relevant set of documents to support your response.

As an NRI, if you are seeking professional assistance in responding to an Income Tax Notice in India, Savetaxs is the name to trust. We have a team of experts who are well-versed in NRI and cross-border taxation. These experts will thoroughly analyze your notice and collect and organize the financial documents and records from you, including proof of investment, ITR copies, foreign bank statements, travel history, and more.

The expert will then help you draft a clear, professional response, ensure the flagged issues are addressed with utmost accuracy, and submit it. Our team will follow up on the status of the submitted response and keep you updated from time to time.

Connect with us as we serve our clients 24/7 across all time zones.