AIS Woes: How Taxpayers Are Struggling with Inaccurate Reporting

AIS Woes: How Taxpayers Are Struggling with Inaccurate Reporting

This blog highlights common issues taxpayers face with the Annual Information Statement & provides practical steps and expert recommendations.

What is an Annual Information Statement 

AIS introduced by the Income Tax Dept in 2021 to enhance financial transparency, has unexpectedly become a source of distress for many taxpayers. While intended to provide a consolidated overview of an individual's financial activities—including securities trades, mutual fund transactions, real estate purchases, and fixed deposits, Annual Information Statement often misreports income details, triggering unwarranted scrutiny. The AIS is an expanded version of Form 26AS, offering a more comprehensive view of income-related transactions. The AIS is a comprehensive record of your financial activity, including:

• Interest from savings/fixed deposits
• Dividends
• Stock transactions
• Real estate purchases
• GST turnover and more

It offers a more detailed view than Form 26AS. It collates information from Banks, Depositories, Registrars and sub-registrars, Other financial reporting institutions

• A detailed report of your financial transactions.
• Sources: Banks, registrars, depositories, and sub-registrars.

Accessible through the Income Tax e-Filing portal, Annual Information Statement is meant to help taxpayers file accurate returns and reduce tax evasion. However, frequent data mismatches and classification errors have been raising serious concerns among tax professionals and individuals alike.

What You Should Do

1. Access Annual Information Statement via the Income Tax e-filing portal.
2. Review each transaction carefully.
3. If you find any error, click “Add Feedback” or “Optional” next to the transaction.
4. The Income Tax Department will:
   • Forward the dispute to the reporting institution (e.g. bank).
   • Update the AIS if the feedback is validated.

You can track the status of each correction as “Accepted” or “Rejected”.

Example of Consequences : If your reported income is Rs. 25,00,000/- but AIS shows investments worth Rs. 40,00,000/-, you may receive a notice asking for an explanation. Failure to justify the mismatch can trigger penalties and interest.

✅ Final Checklist Before Filing ITR

✅ Cross-check Form 16, Form 26AS, and AIS.

✅ Raise AIS feedback before submitting your return.

✅File revised ITR by Dec 31, 2025, if needed.

Challenges Faced by Taxpayers- How taxpayers are struggling with AIS:

Equity and Capital Gains Mismatches

one of the most common Annual Information Statement errors arises from equity trade mismatches. Depositories often report closing prices instead of the actual transaction price, leading to inaccuracies. These minor differences can snowball into major tax declaration issues, especially when multiple trades are involved. In some cases, Annual Information Statement even reports capital gains for individuals who do not hold demat accounts,

Real Estate Transactions in Joint Names

AIS frequently misattributes the full property value to each co-owner regardless of who funded the transaction. This often doubles the reported income in joint ownership cases. A flat purchased in joint names purely for convenience is misread as being owned equally by both parties.

Such duplication may result in over-reporting and unnecessary tax notices.

Misclassification of Gifting Transactions

Gifted properties are sometimes wrongly categorized as sale transactions, triggering compliance notices for both donor and donee based on the stamp duty value. Gift deeds are misclassified by the AIS due to how sub-registrars report the transaction,

Fixed Deposit (FD) Interest Reporting Errors

FD interest often appears incorrectly in AIS due to differing methods of reporting:

• Taxpayers may pay tax annually on accrued interest.
• Banks may report the entire maturity amount in the final year.

Example: An FD of ₹5 lakh at 7% interest accrues ₹35,000 per year. Instead of distributing this over five years, AIS may show ₹1.75 lakh as interest income only in the maturity year, leading to inflated tax liability.

Key Differences: Form 26AS vs. AIS

Common Discrepancies Reported

1. Interest Income mismatch – e.g., Bank FD interest shown in AIS but missing in ITR.
2. TDS discrepancies – difference in amounts between AIS and 26AS.
3. Capital gains – double reporting or incorrect mapping by broker.
4. Wrong PAN tagging – transactions not related to the taxpayer.
5. Dormant accounts – income/transactions from closed accounts still appearing.

Recommendations to the Income Tax Department

1. Legislative Clarity

AIS currently lacks a solid legal foundation. Since AIS is not backed by law, taxpayers have every right to contest its entries.

2. Transparency in Reporting

• Issue public clarifications in case of systemic AIS errors.
• Allow for document uploads explaining joint ownership or gifted assets.

3. Broaden Feedback Mechanism

• Introduce channels for direct communication with reporting entities.
• Enable faster resolution via dedicated dashboards or helplines.

4. Software & Reporting Fixes

• Improve algorithms for auto-reconciliation of transaction values.
• Address reporting flaws by training sub-registrars and institutions on correct formats and responsibilities.

Practical Tips for Taxpayers: Why This Matters

Always cross-check AIS before ITR filing to avoid defective return notices. Senior citizens and salaried taxpayers often miss interest incomes – verify all bank accounts. & Use Form 16, capital gain statements, AIS, and Form 26AS together for accurate reporting.

With enhanced data reporting via AIS, the burden of accuracy now lies on the taxpayer.
Mismatches between AIS and Form 26AS can trigger Section 143(1) adjustments, Defective return under Section 139(9) & Scrutiny notices. Proactive reconciliation ensures smooth, accurate, and compliant ITR filing for AY 2025–26.

Step-by-Step Approach to Reconcile and Correct Mismatches

Taxpayers encountering discrepancies in their AIS should Reconcile records with Form 26AS, Annual Information Statement & Taxpayer Information Summary (TIS). Maintain documentation for all reported transactions. & Submit feedback via the Income Tax Portal:

• Login to incometax.gov.in
• Go to Pending Actions → Compliance Portal
• Click Proceed → Select AIS tile
• Choose Financial Year → View AIS
• Select the relevant transaction → Click Optional under Provide Feedback
• Submit feedback and save the Reference ID

Step 1: Download Form 26AS and AIS

• Form 26AS Login to: https://www.incometax.gov.in & Navigate: e-File → View Form 26AS
• Annual Information Statement (AIS) Visit: https://compliance.insight.gov.in & Navigate: AIS → View/Download AIS (choose PDF or JSON format)
• Taxpayers should categorize mismatches, prepare a reconciliation statement, and upload responses to AIS. If issues remain unresolved, taxpayers may need to contact the reporting institutions directly to correct the source data.

Step 2: Compare Both Statements

• Cross-check TDS details, interest income, capital gains, SFT transactions. For each AIS entry Ensure it is correctly declared in your ITR OR Mark it for feedback/correction if found inaccurate.

Step 3: Submit Feedback on AIS Portal

• Login to: AIS Portal Click: Provide Feedback next to the concerned entry & Choose appropriate reason Like Information is correct, Income not taxable, Duplicate entry, Incorrect amount & Not related to PAN

• Upload supporting documents (e.g., bank statements, Form 16A) if available.

Step 4: File ITR Based on Corrected Data

• Use Form 26AS for claiming TDS credit (as this is final and binding).
• Use Corrected AIS for declaring income.
• Always report actual income, even if not present in either AIS or 26AS.
• Do not report entries under dispute until resolved.

Avoid Penalties: Fix AIS Discrepancies Before Filing ITR (AY 2025-26)

Before filing your Income Tax Return (ITR) for AY 2025-26, it's critical to verify your Annual Information Statement (AIS). Any mismatch or incorrect data in the AIS can lead to Income tax notices, hefty penalties under Section 270A, and interest charges under Sections 234B and 234C.

Conclusion

While the AIS was launched with good intent, its execution remains riddled with flaws. Taxpayers are encouraged to stay vigilant, cross-verify income data, and promptly report errors. Meanwhile, systemic reforms are needed to ensure that AIS becomes a reliable tool for transparency—rather than a trigger for taxpayer anxiety. In summary Points to Remember:

• Always reconcile with Form 26AS, AIS, and TIS.
• Flag mismatches via the Annual Information Statement portal.
• Keep documentation.
• Don’t delay filing: errors can be corrected later.
• Be ready to justify differences if queried.

RJA Expert Suggestions to Income Tax Dept.:

• Expand feedback options for gifted or jointly owned assets.
• Improve reporting entities’ data accuracy.
• Issue clarificatory circulars on known system flaws.

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