Reasons for Getting Income Tax Notice

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With the digitization of the entire process of filing returns, the income tax department now has access to a comprehensive data of all taxpayers. This had enabled them to scrutinize each and every return carefully and pick discrepancies, if any. An income tax notice may not always ring a danger bell, but you should be aware of it to respond it accurately and avoid such mistakes in future.

  1. Undeclared Income

    Certain financial transactions, including high value ones require PAN details of the taxpayer. This way IT department can assess an individual’s investment and expenses by tracing them to his/her PAN. Similarly, interest income, such as from fixed deposits and savings accounts needs to be declared too. If the IT department finds that the income declared by a tax payer seems low against investment and expenses made during the period under scrutiny, then a notice may be served for clarification since it can be a case of undeclared income. Any income being part of your Form 26AS needs to mandatorily be part of your income tax return as well. One of the most common reasons for getting income tax notice is not matching of income as per income tax return and Form 26AS.

  2. Incorrect TDS

    Banks, while crediting interest and employers at the time of disbursing salary deduct TDS for individuals. This TDS figure needs to be mentioned in the ITR for complete calculation of tax liability. One can refer to Form 16 in case of employer and Form 16A (TDS certificate) from bank to arrive at the TDS amount. These details are also mentioned in Form 26AS which is available against your PAN on the IT department website along with details of the tax deductor. It is strongly recommended that this form be checked before entering the TDS amount in the ITR to make sure that you are not missing any amount. If there is a mismatch between the TDS mentioned by you and data with department, then a notice shall be served to seek the reason for the mismatch.Also the TAN of the employer/deductor needs to be correctly mentioned in the income tax return. This TAN should be referred from the Form 26AS/Form 16/Form 16A. If the TAN is mentioned incorrectly in the income tax return, then you will be served with a notice informing about non matching of TDS claim.Sudhir Kaushik, co-founder of Taxspanner.com says, “Verifying all the details as per the Form 26AS is a must as many have been getting notices (including limited scrutiny notices) from the department recently where the ITR filed by the taxpayer does not match with the information available in the form 26AS”.

  3. Not Filing a Return

    According to the Income Tax Act, all individuals with gross total income over Rs. 2.5 lakhs have to file return within the stipulated time i.e. 31st July. This limit is 3 lakhs for senior citizens and 5 lakhs for those above 80 years of age. Irrespective of the fact that TDS has been already deducted, there is no refund claim or no further tax liability, the return needs to be filed. The IT department can serve notice for non-filing and levy a penalty of up to Rs. 5000.

  4. Supporting Documents

    To encourage and simplify the process of filing returns, the IT department has done away with the need to attach supporting documents to the ITR. However, while verifying a return if a clarification on any component of your ITR is needed, then the IT department may ask the individual concerned to furnish certain documents through a notice for a scrutiny.

  5. Non-disclosure Of Investments And Assets In The Name Of Spouse Or Family Members

    For evading taxes, many individuals resort to making investments or buying property in the name of their non-earning spouse or family members so that the income from such investment and the investment itself are not traced to them. However, the income tax rules clearly state that in such cases income is to be clubbed together with the income of the person who has funded the investment. Therefore, the source of income is relevant, not the name on which it is registered. Such clubbing of income issues, attracts notices from IT department.

If the IT Department has served you a notice, then it is important that you prepare a reply and respond to it accordingly. Failure to respond to notices would not only attract further notices, but also a penalty in due course of time. It is also advisable to take professional assistance in responding to IT department’s notice if you are not sure of the course of action and appropriate response to be sent.
Contact us at support@taxspanner.com to file correct returns and avoid the chances of getting an income tax notice. TaxSpanner also helps in clearing the income tax notices/scrutinies.