People visualise a red light blinking when they hear the term Income Tax Notice. What they don’t know is that receiving an Income Tax Notice is not as big deal as they make out of it. One needs to understand the reason behind receiving it and take appropriate actions. Here’s your basic guide to interpret the Income Tax Notice.
First thing you have to do to interpret any Income Tax Notice is to understand the section under which it has been issued and the reason behind the same.
| Title | Description |
| Sec. 131(1A) | Assessing officer has reason to suspect that income has been concealed. |
| Enforcing the attendance of any person, including any officers of a banking company and examining him on oath and completing the production of books of accounts and documents. | |
| Failure to comply with the summons issued under Section 131(1) has been made punishable with a penalty of Rs 10,000 for each default under Section 272A. | |
| Sec. 133(A): | For survey or scrutiny of accounts |
| Sec. 139(9) | For filing defective return |
| Sec. 142 | For not filing the income tax return or for the scrutiny of a documents & accounts in support of the return filed by the taxpayer |
| Sec. 143(1) | For adjustment or additional tax demand if an error or incorrect information is detected in the return filed by the taxpayer. |
| Sec. 143(2) | For scrutiny assessment after detailed inquiry by assessing officer |
| Sec. 148 | For reassessment if the officer believes some income has escaped assessment. |
| Sec. 156 | For dues (tax, interest, penalty, fine or any other sum) payable by the assessee) |
| Sec. 245 | for adjustment of refund with any demand due |
Reasons behind getting an Income Tax Notice
Here are the common reasons behind receiving the Income Tax Notice:
1. ITR Not Filed / Delayed Filing:
Suppose that your employer deducted TDS from your Salary. But, you didn’t file the return. In such case, you’ll receive a Notice from Tax department. You have to respond to this income tax notice within the given time. Otherwise, you may be penalized. you can receive such a notice for any of the previous six assessment years. In case of delayed filing, the department can levy a penalty of Rs 5,000 a year. However, the penalty is not mandatory, and depends upon the discretion of the assessing officer. If the Tax is due, the department may also charge 1% interest per month from the due date.
2. Mismatch in tax Liability in Form-16 and Form 26AS :
TDS figure in your Form-16 may be different from the original tax credit mentioned in your Form-26AS.
In case the information given in the two don’t match, the department goes by the figure in Form 26AS.
There could be two reasons behind the mismatch.
- Either your employer has not deposited the TDS
- Or he has credited the amount of TDS in a different account.
In such situation, you have to file a rectified return.
If your employer has failed to pay the TDS to the tax department, point it out to him. In case the tax is credited to someone else’s account, furnish your Form-16 to the assessing officer for making the necessary changes.
3. Investments in the name of Relatives
Many individuals purchase assets in the name of their spouse, children or other close relatives in order to evade taxes. Here, Assets can be any kind of investment such as land, buildings, fixed deposits, mutual funds, shares, debentures etc.
For eg., Let’s say Amit bought mutual funds in his wife’s name. As per Section 64 of the Income Tax Act, any income Amit generates out of these mutual funds is still considered his own income and he’ll have to pay taxes for it.
You need to make sure that you declare such income when you file your return, otherwise you will receive an income tax notice for the same.
4. Non-disclosure of assets for wealth tax
If you own assets worth more than Rs.30 Lakhs, you need to pay wealth tax at the rate of 1% of the exceeding amount. If you don’t disclose these assets or do not pay taxes on them, you might receive an income tax notice.
These Assets can include land, second homes, cars, yachts, gold jewellery, antiques, art etc. If you are not sure about the exact value of the owned assets, you can approach government approved valuers.
5. High Value Transactions
High value transactions need to be updated to the Income Tax department. It’s done by the entity with which you carry out such a transaction. This is done in order to ensure that taxes are levied as required on each of these transactions on the time. If you fail to do so, an income tax notice is on its way.
What qualifies as a high value transaction?
Here are the incomes that can be qualified as High Value Transactions
- 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
The article is provided by Quicko.com, engaged in online assisting in online ITR preparation and eFiling. You can sign up with Quicko.com and eFile your Tax Returns absolutely free. The author can be contacted at anand@quicko.com.
CAclubindia
