How to Handle a GST or Income Tax Notice

Why Foreign Companies Receive More Notices

Foreign companies operating in India — whether through a wholly owned subsidiary, branch office, or liaison office — are disproportionately targeted by both GST and income tax notices. The reasons are structural:

• Cross-border transactions trigger automated flags. Intercompany payments, royalties, technical service fees, and management charges between the Indian entity and the foreign parent are automatically cross-referenced against transfer pricing thresholds and Form 15CA/15CB filings.
• DTAA benefit claims invite scrutiny. When a foreign company claims reduced withholding tax rates under a Double Taxation Avoidance Agreement, the Assessing Officer may issue a notice to verify the Tax Residency Certificate (TRC) and Form 10F.
• The NUDGE initiative. The CBDT's second phase of its NUDGE campaign (2025-2026) proactively sends communications to taxpayers about potential non-disclosure of foreign assets and foreign-source income, flagging discrepancies between filed ITR data and information in the Annual Information Statement (AIS).

The good news: most notices are routine. The key is understanding which type you have received, what it demands, and how to respond within the deadline.

Part 1: GST Notices — Types, Forms, and Response Procedures

GSTR-3A: Default Notice for Non-Filing

If you fail to file your GST returns (GSTR-1, GSTR-3B, or GSTR-9 annual return) by the due date, the system automatically generates a notice in Form GSTR-3A directing you to file the pending return within 15 days.

Response: File the pending return immediately. Late filing attracts a late fee of INR 50 per day (INR 20 per day for nil returns), capped at INR 10,000 per return. Interest at 18% per annum applies on any unpaid tax amount from the due date until the date of payment.

Consequence of ignoring: If you do not file within 15 days of the GSTR-3A notice, the officer may proceed to assess your liability on a best-judgment basis under Section 62 of the CGST Act and issue a demand in Form ASMT-13.

ASMT-10: Scrutiny Notice

Form ASMT-10 is issued when the GST officer identifies discrepancies in your filed returns — typically mismatches between GSTR-1 (outward supplies) and GSTR-3B (summary return), excess Input Tax Credit (ITC) claims, or inconsistencies between your returns and your suppliers' returns (GSTR-2A/2B reconciliation).

Key features:

• This is a non-confrontational notice — no demand is raised at this stage
• It is an opportunity to explain discrepancies or correct errors voluntarily
• ASMT-10 is a mandatory procedural step before a show cause notice (DRC-01) can be issued

Response deadline: 30 days from the date of issue, with the option to request an extension of up to 15 additional days.

How to respond: Submit your reply in Form ASMT-11 through the GST portal. Your reply should include:

• A detailed reconciliation of the discrepancies identified
• Supporting documents (invoices, credit notes, bank statements)
• Corrected figures where errors are acknowledged
• A clear explanation for any legitimate differences

Outcome: If the officer accepts your explanation, they close the matter by issuing Form ASMT-12. If not satisfied, the case escalates to a show cause notice (DRC-01).

DRC-01: Show Cause Notice (SCN)

This is the most serious GST notice. Form DRC-01 is issued under Section 73 (non-fraud cases) or Section 74 (fraud, wilful misstatement, or suppression of facts) when the officer determines that GST has been short-paid, not paid, erroneously refunded, or ITC has been wrongly availed.

Section 73 vs. Section 74:

Response deadline: 30 days from the date of issue.

How to respond: File your reply in Form DRC-06 through the GST portal. This is your formal legal defence — it should be prepared with the help of a tax professional and should include:

• Point-by-point response to each allegation in the SCN
• Legal arguments citing relevant provisions, circulars, and case law
• Documentary evidence supporting your position
• Computation showing the correct tax liability (if any)

Settlement option: If you agree with the demand, paying the tax due plus interest and the applicable penalty (10% for Section 73, 25% for Section 74) within 30 days of the SCN concludes the proceedings immediately — no order is passed, and no further action is taken.

DRC-07: Demand Order

If your DRC-06 response is not accepted, the officer passes a final order in Form DRC-07 demanding payment of the determined tax, interest, and penalty. This order can be appealed before the GST Appellate Authority within 3 months (extendable by 1 month) by filing Form GST APL-01.

DRC-16: Tax Recovery Notice

If you fail to pay the demand raised in DRC-07 within 3 months, the department initiates recovery proceedings through Form DRC-16. Recovery methods include attachment of bank accounts, seizure of goods, or arrest of the person responsible (in extreme fraud cases under Section 132).

Part 2: Income Tax Notices — Types, Forms, and Response Procedures

Section 143(1): CPC Intimation

After you file your income tax return, the Central Processing Centre (CPC) in Bangalore processes it through automated checks. The Section 143(1) intimation reports the CPC's computed income against your reported income, showing any adjustments for arithmetical errors, apparent incorrect claims, or mismatches with Form 26AS and the Annual Information Statement.

Response deadline: 30 days. If you agree with the adjustments, no action is needed. If you disagree, file a rectification request under Section 154 through the e-Filing portal.

Common trigger for foreign companies: TDS credit mismatch — where the TDS deducted by Indian clients under Section 195 does not match what appears in Form 26AS, often because the deductor filed their TDS return late or with errors.

Section 143(2): Scrutiny Assessment Notice

This notice indicates your return has been selected for detailed examination by the Assessing Officer (AO). There are two types:

• Limited scrutiny (CASS-selected): The Computer-Assisted Scrutiny Selection system flags specific items — a particular deduction, a large intercompany transaction, or an unusual expense. The AO's inquiry is restricted to the flagged issues.
• Complete scrutiny: The AO examines your entire return, books of accounts, and all supporting documentation.

Response deadline: As specified in the notice, typically 15-30 days. This notice must be issued within 3 months from the end of the financial year in which the return was filed.

Common trigger for foreign companies: Large intercompany transactions, transfer pricing adjustments, DTAA benefit claims, and permanent establishment questions.

Section 148/148A: Reassessment Notice

The most consequential income tax notice. Issued when the AO believes income has escaped assessment — income that was not reported or was underreported in a prior year.

Post-2021 two-step process:

1. Section 148A — Show Cause Notice: The AO shares the information they possess and gives you 7-30 days to respond with your explanation.
2. Section 148 — Reassessment Notice: If your response under 148A is not satisfactory, the AO passes a reasoned order and requires you to file a return for the relevant assessment year.

Time limits:

• Normal cases: Within 3 years from the end of the relevant assessment year
• Escaped income above INR 50 lakh: Within 5 years from the end of the relevant assessment year

Budget 2025 change: Individuals who have received a show-cause notice under Section 148A can no longer file an updated return once 36 months have passed since the end of the relevant assessment year.

Common trigger for foreign companies: Permanent establishment disputes, unreported Indian-source income, incorrect DTAA benefit claims, or information received from treaty partners through Automatic Exchange of Information (AEOI).

Section 142(1): Inquiry Before Assessment

Issued when the AO needs additional information or documents. Can be issued whether or not you have filed a return. If you have not filed a return, the AO can direct you to file one within the specified time.

Response deadline: Typically 15 days. Non-compliance leads to a best judgment assessment under Section 144, where the AO estimates your income without your input.

Section 156: Demand Notice

A formal demand for payment of tax, interest, or penalty determined through an assessment or rectification order.

Response options:

• Pay the demand within 30 days to avoid additional interest under Section 220(2) at 1% per month
• File a rectification under Section 154 if the demand contains errors
• Appeal to the Commissioner of Income Tax (Appeals) within 30 days
• Apply for stay of demand pending appeal

Step-by-Step Response Protocol for Any Notice

Whether GST or income tax, the response protocol follows the same logical sequence:

Step 1: Verify Authenticity

Fraudulent notices are increasingly common. Verify every notice through the official portal:

• GST notices: Log in to gst.gov.in and check under Services > User Services > View Additional Notices/Orders
• Income tax notices: Log in to incometax.gov.in and check under Pending Actions > e-Proceedings

Genuine notices carry a Document Identification Number (DIN). Verify the DIN on the respective portal before taking any action.

Step 2: Identify the Notice Type and Deadline

Read the notice carefully to identify:

• The specific section or form under which it is issued
• The assessment year or tax period in question
• The specific discrepancy or issue raised
• The response deadline

Step 3: Gather Documentation

For GST notices, prepare:

• Return-wise reconciliation of GSTR-1 vs. GSTR-3B
• ITC reconciliation against GSTR-2A/2B
• Invoices, credit notes, and debit notes for the disputed period
• Bank statements showing tax payments

For income tax notices, prepare:

• Books of accounts for the relevant year
• All bank statements (Indian and foreign accounts)
• Transfer pricing documentation (if applicable)
• DTAA benefit documentation — TRC, Form 10F, no-PE declaration
• Intercompany agreements and invoices

Step 4: Prepare and Submit Your Response

All responses must be filed electronically through the respective portal. Key guidelines:

• Address each point raised in the notice individually — do not give a blanket response
• Attach all supporting documents as PDFs (maximum 50 MB total for income tax; varies for GST)
• If you agree with part of the demand, state clearly which portions you accept and which you dispute
• Note the transaction ID or acknowledgement number after submission

Step 5: Follow Up and Escalate if Needed

If you do not receive a resolution within the expected timeframe:

• For GST: File a complaint on the GST Grievance Redressal portal (selfservice.gstsystem.in)
• For income tax: Track the status through e-Proceedings and write to the jurisdictional Commissioner if there are delays

Penalties for Non-Response: The Real Cost of Ignoring Notices

When to Engage a Professional

While routine intimations (Section 143(1) or GSTR-3A) can often be handled internally, professional assistance is essential for:

• Scrutiny assessments (143(2) or ASMT-10): Especially if the issues involve transfer pricing, PE determination, or DTAA interpretation
• Show cause notices (DRC-01 or Section 148A): These require legal arguments, case law citations, and strategic positioning
• High-value demands (Section 156 or DRC-07): Where the demand exceeds INR 10 lakh, professional representation is essential for appeals
• Cross-border issues: Any notice involving intercompany transactions, foreign tax credits, or treaty interpretation needs specialist handling

For foreign companies, Beacon Filing's tax advisory services provide end-to-end notice response support — from document preparation to e-Proceedings submissions to appeal representation before the Commissioner of Income Tax (Appeals), the GST Appellate Authority, and the Income Tax Appellate Tribunal.

Proactive Measures to Minimize Notice Risk

• Reconcile before filing: Match GSTR-1 with GSTR-3B before filing GST returns. Match Form 26AS and AIS with your ITR before filing income tax returns.
• File on time, every time: Late filing is the simplest trigger for scrutiny. Ensure timely filing of all returns — GST monthly returns by the 20th, ITR by October 31 for companies requiring audit.
• Maintain 8-year documentation: Keep all intercompany agreements, invoices, tax certificates, and payment proofs organized and accessible for at least 8 years — the maximum reassessment window for income tax.
• Get transfer pricing right: Prepare contemporaneous transfer pricing documentation for all intercompany transactions exceeding INR 1 crore. Transfer pricing adjustments are the single largest source of tax disputes for foreign companies in India.
• Renew DTAA certificates annually: Obtain a fresh Tax Residency Certificate (TRC) and file Form 10F each year. Do not rely on expired certificates — this is the most common reason DTAA benefit claims are rejected.

Beacon Filing provides comprehensive annual compliance services and GST compliance management to help foreign companies stay ahead of notices and maintain a clean compliance record in India.

Key Takeaways

• Most GST and income tax notices are routine — the critical factor is responding within the deadline with complete documentation.
• GST notices follow a clear escalation path: GSTR-3A (non-filing) to ASMT-10 (scrutiny) to DRC-01 (show cause) to DRC-07 (demand order). Early resolution at each stage minimizes penalties.
• Income tax notices range from automated CPC intimations (Section 143(1)) to serious reassessment proceedings (Section 148). Always verify notice authenticity through the e-Proceedings portal before responding.
• For foreign companies, cross-border transactions, transfer pricing, DTAA claims, and permanent establishment questions are the primary notice triggers — proactive compliance in these areas significantly reduces risk.
• Never ignore a notice. The penalties for non-response — best judgment assessments, inflated demands, bank account attachments — are always worse than the cost of preparing a proper response.