Got an Income Tax Notice? Here’s why.

 In Taxation

A notice from the Income Tax Department in your mailbox hustles you into a state of frenzy. Right? You may have filed your return in due time and yet received a notice. Let us take a look at some of the reasons that might land you with an ITR notice.

1. Non-filing of Income Tax Return (ITR)

Any person whose gross total income is above the exemption limit (Rupees five lakhs in case of super-senior citizens1, rupees three lakhs in case of senior citizens2 and rupees two lakhs fifty thousand otherwise) is required to file his/her ITR. You may even get a notice if you have paid your taxes diligently just because you didn’t file your annual tax return (the annual tax return is a form that is filed with the tax authorities reporting the incomes received during the year, the expenses incurred and other relevant tax information in due time.

Once you file your return online, you need to submit a copy of your acknowledgement (ITRV) within 120 days of uploading your return or simply e-verify your return from the Income Tax e-filing portal.

(1) Super senior citizens: Under the Income-tax Act, 1961, an individual who is 80 years or more is categorized as ‘Super Senior Citizen’.

(2) Senior citizens: Under the Income-tax Act, 1961, a ‘Senior Citizen’ has been defined as an individual who attains of the age of 60 years at any time during a financial year.

2. Inadvertent/ willful non-disclosure of Income

You may be served a notice in case of concealment of income or non-payment of tax. The minimum amount of penalty in such cases is 100% subject to a maximum of 300% of the tax sought to be evaded. Such amount is in addition to the amount of tax payable.

Suppose you made some capital gains or had rental income during the year. You are required to disclose such an amount in your tax return to avoid getting in trouble with the tax authorities.

3. Discrepancies in TDS

TDS (Tax Deducted at Source) is deducted when a payment is due or at the time of actual payment, whichever is earlier, by the person making the said payment. TDS may be deducted on salary, interest, commission, rent, professional fees, etc. For instance, your bank deducts TDS on the interest earned by your fixed deposits.

There might be some inconsistencies with regard to TDS. The reasons vary from one case to another. The bottom line being, the figures mentioned in Form 26AS which is a consolidated tax statement issued

by the Income Tax Department and the TDS credit availed should match. If it doesn’t you are likely to get an ITR notice.

4. Misreporting Foreign Assets

In order to avoid being on the radar of the Income Tax Authorities, you must disclose all foreign incomes and foreign assets alike. All foreign bank accounts must be disclosed along with the amount of interest earned irrespective of them being operational or otherwise or even with inconsequential figures. This clause is also applicable to foreign nationals working in India and entities earning income from foreign clients.

5. Clubbing of Income

A common practice for taxpayers is to invest or purchase assets in the name of one’s spouse or minor children. In case such investments or assets generate some income, such incomes are required to be disclosed and clubbed with the income of such an assessee.

The lack of such disclosures may invite an ITR notice.

6. High-value transactions and sudden changes in income

Transactions that are affected through high denominations are referred to as high-value transactions. It is mandatory to report all high-value transactions and as such the tax department keeps a close tab on such transactions. For instance, the sum total of transactions involving INR 10 lakhs in cash is classified as high-value transactions. Similarly, for current accounts, cash deposits or withdrawals worth INR 50 lakhs are considered high-value transactions and hence need to be reported.

A sharp fall in the income of a person or a significant and dramatic growth in the income levels of an assessee may alert the tax authorities and may even lead to an ITR notice in certain cases.

7. Others

Due to ignorance or lack of proper knowledge, an assessee may file a wrong ITR form or may skip some information which is obligatory. Since the return was not filed correctly or was not completely error-free, the tax authorities may issue a notice in such a case directing him to file a revised return after correcting the error(s).

Article by Mohika Mitra, Articled Assistant 

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