Basic Understanding
The income tax department validates each ITR with its own record and if mistakes found out by the system. A computer-generated notice or intimation under section 143(1) is sent to the assessee.
This intimation has two columns 'As provided by a taxpayer in the Return of Income' and 'As computed under section 143(1)' where the amounts are compared for these - income under various heads and deductions, TDS and self-tax payments. You can run through each of these amounts and find out where the discrepancy is.
If there is no mismatch in the notice
If all of the fields are matching and there is no tax due or refundable - in such a case you can safely assume the intimation to be an acknowledgment of your tax return. No further action is required from your side.
If there is a final tax due and you agree with it
You need to make payment of this tax due to the income tax department. Once you make a payment of the tax due, no further action is required from your end.
Where there is a final tax due and you do not agree with such tax due
One of the situations where this arises is when a certain TDS has been disallowed. Or a self-assessment tax payment has not been considered. If you do not agree with the final calculations done by the department, you need to file a rectification under section 154(1). This can be done by - Log on to e-Filing application https://incometaxindiaefiling.gov.in/ and GO TO - > My Account - > Rectification request. You can also reach out to your assessing officer and submit an application in writing.
When can you expect a notice from the IT department?
1. If there is an Error with TDS Amount
The most common issue with returns filed is often a mismatch in the TDS amounts. Sometimes your employer or deductor may have delayed or made a mistake filing their TDS returns.
If that is the problem with your return too, request your employer to revise the TDS amount credited to you.
2. A discrepancy in Return Filed by you
If the discrepancy is with the amounts declared by you in the returns you filed, differences may arise because:
• Forgotten to declare some incomes, like Interest from FDs
• Claimed a deduction under the wrong section
• Provided incomplete information
These notices are generated automatically by the Income Tax Department's software.
Sometimes even after filing everything correctly to the best of your knowledge, but still may have received a notice.
3. Need for Documentation
Sometimes the IT department would like to review certain documentation based on which your returns were filed. In case of such a request, furnish the said documents immediately.
4. To remind that Tax Returns Not Filed
In case the notice is to remind you that you have not filed your tax returns yet, file the return without any delay. The IT department can remind you about unfiled returns for the previous 6 assessment years. If you are not required by law to file a tax return, then reply to the IT department clarifying this fact.
5. Investments in the name of spouse
Many individuals resort to purchasing assets in the name of their spouse, children or other close family members in the hope of evading taxes. Assets, in this case, refer to any kind of investment like land, buildings, fixed deposits, mutual funds, shares, debentures etc. Let's say you bought mutual funds in your wife's name. As per section 64 of the Income Tax Act, any income you generate out of these mutual funds is still considered your income and YOU will be taxed for it. You need to ensure that you declare such income at the time of filing your return, else receive a notice for the same.
6. High-Value Transactions
High-value transactions need to be updated to the Income Tax department by the entity with which you carry out such a transaction. This is in order to ensure taxes are levied as required on each of these transactions in a timely manner. Failure to do so is an invitation for a tax notice.
What qualifies as a high-value transaction?
• Cash deposits in a bank worth Rs 10 lakh or more in a year
• Credit card purchases of Rs 2 lakh or more
• Mutual fund investments for Rs 2 lakh or more
• Purchase of bonds and debentures worth Rs 5 lakh or more in a year
• Sale or purchase of property worth Rs 30 lakh or more
7. Random Scrutiny
To enforce tax compliance, the IT department randomly scrutinizes returns under section 143 (3). If you receive such a scrutiny notice, don't panic. Just follow these simple steps:
1. Check the validity of the notice as well as the duration within which you have to respond to the Assessing Officer. Usually, a scrutiny notice is served to the assessee within a period of 6 months from the end of the financial year. Very rarely, notices related to older cases are also sent under section 148, if the Assessing Officer finds a genuine reason to do so.
2. Make multiple copies of the notice received.
3. Submit documents requested along with a cover letter listing all the documents to the Assessing Officer.
4. Request for an acknowledged copy of the cover letter from the Assessing Officer for your own records.
5. If the notice is regarding your old dues, they can be adjusted against any pending refund claims made by you for a current year.
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