Why Many Salaried Employees Received Notices for AY 2023-24?

Introduction

As we are all aware, under the Income Tax Act of 1961, every assessee has to furnish his income tax return as required by 139. Once it has been furnished, the assessment part comes into play, where an assessing officer scrutinizes the ITR form and takes action as required.

Have you heard about Income Tax Notices? If no let’s understand what it is!

What is Income Tax Notices?

Income tax notices are formal communications issued by tax authorities to taxpayers regarding their income tax obligations. These notices typically inform taxpayers about discrepancies or issues identified by tax authorities in their tax returns or financial information. There can be different types of notices for various purposes. In this article you will know about the Notices which might be faced by Salaried person during their Assessment.

Reasons for Income Tax Notices to Salaried Employees

Following are some of the reasons for which an Assessee might get notice

• Discrepancies in Income: If there are discrepancies between the income reported by you and the income reported by your employer, financial institutions, or other sources, the tax authorities might issue a notice to seek clarification.
• Undisclosed Income: On Failure of reporting other source income or rental income or any other income might lead to notice for under reporting of income.
• Mismatch with form 26AS: Form 26AS is system generated form containing incomes through Assessee’s PAN. If there is difference between income reported & reflected in 26AS notice might be issued
• Non-Filling or Late Filling of returns: Failing to file your income tax return or filing it after the due date might lead to a notice demanding an explanation for the delay.
• Claiming Incorrect deductions & wrong credits: Notices may be issued if taxpayers claim deductions or credits for which they are not eligible, or if the amount claimed exceeds allowable limits. For example, claiming excessive business expenses or charitable contributions without proper documentation could trigger a notice.
• Random Scrutiny: In some cases, taxpayers may be selected for audit or review on a random basis as part of tax enforcement efforts to ensure compliance with tax laws and regulations.
• Unreported foreign Assets or Income: If you have foreign income, assets, or financial interests and you haven't disclosed them as required by tax regulations, you might receive a notice
• Non-Response of previous notices: Ignoring or not responding adequately to previous notices can lead to further and more serious notices.
• High Value transactions: Unusual high-value transactions, like large cash deposits, property purchases, or investments, could trigger a notice as tax authorities aim to ensure the legitimacy of these transactions.

What are types of notices that salaried Employees might face?

Following are some of notices that are faced by salaried person

• Notice us 142(1): Such type of notice might be issued for two reasons ignorance of this notice might attract a penalty of upto Rs.10,000 and imprisonment of up to 1 year.

1. When you have already filed the return, the income tax officer needs more information and documents.
2. If you have not filed your ITR, but the income tax officer wants you to file it.

• Notice us 143(1): Such type of notice is issued after the ITR has been filled & processed to communicate tax computed by income tax department to taxpayer. It might be issued if there is any pending tax liability or refund to be paid
• Notice us 148: If the income tax officer has proof or reason to believe that you have not properly disclosed your income or paid tax then you might receive the income escaping notice u/s 148
• Notice us 139(9):If there are errors or discrepancies in the tax return filed by the taxpayer, the tax department might issue this notice to give the taxpayer an opportunity to rectify those errors. It is also known as a defective return notice. If you receive this notice, you have to file a revised return addressing the issues mentioned in the notice within 15 days of receiving it.
• Notice us 143(2):This notice is issued to notify the taxpayer that his/her return has been picked for scrutiny or a detailed assessment to ensure that you have not understated your income, paid lesser taxes, or claimed excessive losses.
• Notice us 156(Demand Notice): If any amount of tax, fees, penalty or fine is due to be paid by taxpayer then income tax department may issue demand notice us 156 & taxpayer has to pay the same amount within 30 Days
• Notice us 245:If the income tax department believes that the tax has not been paid for the previous years and wants to set off that demand with the current year’s refund, then he/she might issue a notice u/s 245 if you fail to respond in 30 days then the income tax officer can consider this as consent and make the adjustment

What is moonlighting?

Moonlighting is the practice of earning income apart from your regular job or the primary source of income but not disclosing it in the income tax return. It is considered a misreporting of income and can lead you to receive notices. In many cases income from moonlight is greater than the reported income. Such kind of incomes are received through online mode as The AI technology implemented by the Income Tax Department was able to successfully identify such unreported income. Initially, only those individuals were sent notices whose annual undisclosed income was between Rs. 5 lakhs and Rs.10 lakhs. But now, the income tax department is identifying all such individuals and sending notices for misreporting of income.

Points to be taken care to avoid notices

Following points and Assessee should kept in mind to avoid these kind of notices

• File & pay tax timely: Assessee should file it’s ITR Form & shall pay its tax liability without any delay.
• Reconcile with form 26AS: An Assesse should reconcile it’s reported income with form 26AS as it is the main reason for which notices are issued
• Maintain Financial Records: Maintain proper accounting records which help you to provide shelter against claimed demand
• Don’t forget to report any income: An Assesse must disclose all its income as discrepancies might lead to significant penalties.
• Kept sufficient Evidences of claimed deductions: You must keep all rent receipts & valid proofs for claiming HRA exemptions& other taxable allowances
• Don’t hide any significant transactions: An Assesse should disclose all significant financial transactions made during the year.