Common Mistakes Leading to AIS vs ITR Mismatch Notices

Getting an AIS vs ITR mismatch notice can feel overwhelming — especially when you’ve already filed on time and followed Form 16. You’re not alone: many taxpayers in India see notices even for small reporting differences. This post explains why it happens and how to fix it without panic.

Summary: The key takeaway: most AIS/ITR mismatches are avoidable with a simple reconciliation habit — compare AIS/26AS, bank/broker reports and payroll documents before filing, correct errors quickly (revise ITR if needed), and give a clear response to the assessing officer. Doing this saves time, penalties and follow-up notices.

What’s the real problem in India?

India’s tax system now automates data flows: reporting by banks, employers, mutual funds, and registries appears in AIS/26AS. The CBDT receives and consolidates this information and cross-checks it with your ITR for the relevant AY/PY. If figures don’t match, you often get an intimation or discrepancy notice — sometimes within months of the ITR filing last date.

• Symptoms:
  • Notice shows undeclared income or higher TDS/TCS than claimed.
  • Capital gains reported by broker differ from your ITR (cost basis/indexation issues).
  • Interest income from banks or recurring deposits appears in AIS but not in ITR.
  • TDS on salary or professional fees is reflected late in Form 26AS, creating a shortfall in claimed TDS.

What people get wrong

• Assuming Form 16/16A automatically guarantees no mismatch — these are sometimes missing entries or errors.
• Not reconciling AIS/26AS before filing — especially contractors, freelancers and MSMEs who have multiple TDS sources.
• Misreporting capital gains: wrong purchase date, ignoring capital gains indexation, or not including short-term vs long-term distinctions under new vs old regime slabs.
• Overlooking TDS/TCS entries — TDS shown in AIS but not in your books because the deductor used a different PAN or delayed deposit.
• Waiting to respond — delay increases scrutiny and possible penalties under Section 234 or other provisions.

A better approach

Follow this simple 4-step framework. It works for salaried individuals, professionals, founders and MSMEs.

• Step 1 — Reconcile early: Pull AIS/26AS and compare with your Form 16, bank statements, broker consolidated statements and GST (if applicable) before you file. Identify mismatches and reasons.
• Step 2 — Correct data sources: Contact the deductor (employer, client, bank or broker) to fix PAN errors, incorrect challan numbers or delayed TDS deposits. Save written proof.
• Step 3 — Adjust your ITR: If you missed income or claimed incorrect exemptions (e.g., Section 80C limit claims, house rent allowance), file a revised return within the allowable period or include the disclosure when responding to the notice.
• Step 4 — Respond clearly: When a notice arrives, reply with a concise reconciliation statement, stamped bank/broker statements, Form 26AS printout and any corrigenda from deductors.

Short story: A startup founder received a mismatch for Rs. 2.5 lakh due to an ESOP sale entered by the broker under a different PAN. After reconciliation and a corrected broker statement, the notice was withdrawn within 30 days.

Quick implementation checklist

• Download AIS/26AS for the relevant AY/PY and cross-check with ITR numbers.
• Match salary in Form 16 with AIS & payroll; confirm TDS/TCS amounts.
• Reconcile broker consolidated capital gains statement; verify purchase dates and cost for capital gains indexation.
• Check bank interest, FD maturity, and recurring deposit entries against AIS.
• Verify PAN used by clients/employers; obtain corrected TDS certificates (Form 16A) if needed.
• Confirm exemptions claimed (Section 80C limit, HRA) with supporting documents.
• Decide between new vs old regime slabs and reflect this consistently in your computations.
• Keep electronic copies of all corrigenda, challans, and communication with deductors.
• If you discover an error post-filing, prepare a revised return and supporting schedule quickly.
• For complex disputes (capital gains, ESOPs, foreign income), consult a tax expert before responding.

What success looks like

• Fewer AIS vs ITR mismatch notices year-on-year.
• Reduced disputed tax amounts and avoided interest/penalties.
• Faster closure of notices — responses accepted within weeks instead of months.
• Clear audit trail: receipts, corrected TDS certificates and communication stored for 6+ years.
• Confidence in claiming correct deductions within Section 80C limit and accurate capital gains reporting with indexation.

Risks & how to manage them

Risk: Deductor refuses to correct TDS entries or admits delay. Manage by collecting proof of communication and challenging through the CPC or assessing officer with evidence.

Risk: Missed revision window for ITR. Manage by providing a full reconciliation in reply to the notice and seeking waiver or adjustment where genuine mistakes exist.

Risk: Penalty or interest. Manage by showing proactive correction, cooperating with CBDT timelines and, where appropriate, filing for condonation or settlement with professional help.

Tools & data

• Form 26AS / AIS download from the TRACES or income tax portal.
• Employer Form 16, Form 16A and payroll reports.
• Broker consolidated capital gains statement, contract notes and demat statements.
• Bank statements, FD receipts and challan payment proofs for TDS/TCS.
• ITR XML, past returns and the [link:ITR guide] for filing best practices.
• Spreadsheet or basic reconciliation tool to map AIS entries to your books.

Next steps

If you’ve received a mismatch notice or want to avoid one, start with a 30‑minute reconciliation: pull AIS/26AS and Form 16, check broker and bank statements, and list discrepancies. If anything looks unresolved, get professional help — it’s faster and usually cheaper than prolonged dispute handling.

Contact Finstory for a quick review: we help salaried employees, professionals, founders and MSMEs reconcile AIS/26AS, correct TDS/TCS issues, and draft strong responses to notices. Don’t wait until penalties accumulate — Book a free 20‑min consultation.

Work with Finstory. Speak with an Expert for a personalised plan to reduce your tax outgo and stay compliant. Book a free 20‑min consultation.

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