Defective Return Notice: Section 263(7) vs the Old 139(9)

If you get a defective return notice in October 2026, it is almost certainly for AY 2026-27 or an earlier year, and it is issued under section 139(9) of the Income-tax Act, 1961. Nothing in the procedure has changed for you. The step-by-step guide to a 139(9) notice still applies in full.

The new provision, section 263(7) of the Income-tax Act, 2025, applies to returns for Tax Year 2026-27 onwards, which are filed from 2027. The biggest change is where the list of defects sits. The 1961 Act spells the defects out in the section itself. Under the 2025 Act they are prescribed in Rule 166 of the Income-tax Rules, 2026, and the rule's list is shorter and different.

Which law applies to your return

The Income-tax Act, 2025 came into force on 1 April 2026. Returns, processing and notices for assessment years up to AY 2026-27 continue under the 1961 Act.

So a belated AY 2026-27 return filed in December 2026 is still checked against section 139(9), even though it is filed months after the new Act began. Which law applies to my return or notice explains the split in more detail.

The defect list: old Act vs Rule 166

Under section 139(9), the Explanation to the section lists what makes a return defective. The grounds include annexures, schedules or columns left blank, tax and interest under section 140A not paid before filing, a missing tax audit report, missing balance sheet and profit and loss account where books are kept, and missing tax payment details in an updated return.

Rule 166(1), as notified in the Income-tax Rules, 2026, treats a return as defective if any one of four conditions is met:

Rule 166(2) lets the CBDT notify classes of taxpayers to whom any of these conditions does not apply, or applies with changes.

What is the same

• Blank or incomplete schedules remain the main ground. Under both laws, a return with schedules that apply to you left empty is defective. Clause (a) of Rule 166 also names the computation of income, gross total income and total income.
• The tax audit report must still be filed before the return. Section 63 of the 2025 Act is the counterpart of section 44AB.
• Updated returns must still carry the details of the tax paid on them.

What is new or different

• The list lives in the rules. The CBDT can change it, or exempt a class of taxpayers, by notification, without amending the Act.
• MAT and AMT credit is a new ground. If you are a company paying MAT, or a person paying AMT, and you claim more brought-forward credit than your latest return carried forward, the return is defective. This matters mainly to companies, firms and LLPs, not to salaried individuals.
• Unpaid self-assessment tax is not one of the four conditions. Under the 1961 Act, filing without paying the tax and interest due under section 140A makes the return defective. Rule 166 as notified does not list it. Do not read that as permission to file without paying: unpaid tax will still show as a demand when the return is processed, with interest, so pay before you file.
• No separate grounds for financial statements. The 1961 Explanation lists the balance sheet, profit and loss account and related statements as separate requirements. Under Rule 166 they fall within clause (a) wherever the return's schedules ask for them.

The response window

Under section 139(9), you have 15 days from the date of the notice to remove the defect, or longer if you apply and it is allowed. If the defect is not removed in time, the return is treated as invalid, as though you never filed it. A defect cured after the deadline but before assessment can be condoned.

Commentaries on the 2025 Act report that section 263(7) keeps the same 15-day period, the extension on application, the invalid-return consequence and the condonation route. The first notices under it will only be issued once Tax Year 2026-27 returns are filed in 2027. When you get one, go by the due date printed on the notice itself.

A worked example of what an invalid return costs, for a Tax Year 2026-27 return filed in July 2027:

How to respond

The portal steps are the same as for a 139(9) notice today:

1. Log in at incometax.gov.in and go to Pending Actions > e-Proceedings.
2. Open the defective return notice for the year. It states the defect, the resolution CPC suggests and the response due date.
3. If you agree, file a corrected, complete return in response to the notice, with the notice details the form asks for.
4. If you disagree, choose that option and explain why, with documents as PDFs.
5. Submit and e-verify.

For a 1961 Act notice, the proceeding is labelled with section 139(9). The label for a section 263(7) notice may read differently once those notices start; check that the year in the notice is the one you expect.

If the notice says schedules are missing, compare the return against your AIS and Form 26AS before you agree. Most defects come from income or receipts shown there but not in the return.

myutils.me shows each PAN's ITR status for every assessment year after you add the PAN or press Sync, so a return marked defective is easy to spot across family members. It does not show e-Proceedings notices, so read and answer the notice on the portal.

FAQ

I got a defective return notice in 2026. Is it under the new Act?

No, not if it is about AY 2026-27 or an earlier year. Those returns stay under the 1961 Act, so the notice is under section 139(9). Section 263(7) applies to returns for Tax Year 2026-27 onwards.

Where is the list of defects under the 2025 Act?

In Rule 166 of the Income-tax Rules, 2026. Section 263(7) refers to the conditions prescribed, and Rule 166 sets out four: incomplete fields and schedules, a missing audit report, missing tax payment details in a return under section 263(6), and a MAT or AMT credit mismatch.

Can I file without paying the tax due if unpaid tax isn't a defect any more?

You shouldn't. The tax and interest are still payable, and processing will raise a demand for them with interest. Pay before you file and enter the challan in the return.

Is a defective return notice a scrutiny notice?

No. It points out a gap in the return so it can be processed. It carries no penalty by itself, but ignoring it makes the return invalid.

Sources

• Rule 166, Income-tax Rules, 2026 (incometaxindia.gov.in)
• Income Tax e-Filing portal, e-Proceedings
• Income-tax Rules, 2026, notified by CBDT as G.S.R. 198(E) dated 20 March 2026, in force from 1 April 2026