10 reasons why you may get a notice from the income tax department
You may anytime come under the taxman's lens. The department can randomly scrutinise returns to enforce tax compliance.
By Navneet Dubey, ET Online | Updated:
ITR filing guide: Red flags to avoid while filing tax return
You may get worried if you get a notice from the income taxdepartment. You can get a tax notice for many reasons. These could include not filing income tax return (ITR) on time, calculation errors, not reporting income correctly or even claiming excessive losses.
Rajat Mohan, Senior Partner, AMRG & Associates said, "Taxpayers, in general, are issued income tax notices under Section 139(9), 143(1), 143(2), 143(3), 245, 144, 147 and 148 of Income Tax Act, 1961 regarding non-filing of ITR, concealment of taxable income, claiming an in genuine tax refund, computing excessive tax losses, long term capital gains (LTCG), scrutiny etc."
Here are 10 common reasons taxpayers can get an income tax notice and how they can avoid them.
1. For delay filing I-T return
Saraswathi Kasturirangan, Partner, Deloitte India said that filing tax return where the individual has taxable income is mandated under section 139(1). The notices for non-filing by the due date are generally automated reminders which point l out the obligation under section 139(1) and remind taxpayers to file their returns to avoid penalties. "However, a notice under section 142(1)(i) may be issued requiring the taxpayer to furnish the return if not filed within the due date," she said.
To avoid getting notice: You must file ITR before the deadline for filing ITR for a particular assessment year.
2. Misreporting LTCG from equity
You need to report any realised long-term capital gains (LTCG) on listed equity and equity-related mutual funds at the time of filing ITR. LTCG above Rs 1 lakh in a year on listed equity and equity-related mutual funds on which STT has been paid will be taxed at 10 percent. Reporting LTCG on equity can be a bit complex for taxpayers from the financial year 2018-19 onwards.
Kasturirangan said that a review of high-value transactions during tax scrutiny enables tax officers to identify unreported capital gains. "While completing the assessment under section 143(3) the officers will include these as taxable incomes, charge interest on tax shortfall and initiate penalty proceedings under section 270A," she said.
Therefore, you should ensure that you have done the right computation and have mentioned the information correctly. A simple calculation error may get you a demand notice, where the tax department can ask you to pay the tax due.
To avoid getting notice: Make sure you get the statement on capital gains either from your broker or directly from the mutual fund house and then mention the correct details accordingly in the form. You should also cross check the LTCG calculation details yourself with account statements and take the help of a tax advisor in case the calculations are too numerous or complicated for you.
3. For TDS claimed not matching with Form 26AS
While filing ITR, the TDS should ideally have to be the same in Form 26AS and Form 16 or 16A. However, there can be several reasons why some details may mismatch. Notices for TDS mismatch are issued under section 143(1). The reason for getting this notice is a mismatch in the TDS reported by the deductor to the revenue authorities and the TDS claimed in the return of income by the assessee.
To avoid getting notice: Amarpal S. Chadha, Tax Partner and India Mobility Leader, EY India said, "As a precaution, before filing the return of income, one could check the TDS reported in the Form 26AS and ensure that the TDS is correctly reported by various deductors and then proceed to file the return of income. If in the case of mismatch, the assessee has to approach the respective deductor to update their reporting."
4. For non-disclosure of income
Revenue authorities obtain information about income of assesses from different sources like banks, employers, tenants, mutual exchange of information between countries etc. If you have not shown some income in your ITR, then you may get a notice from the income tax department if they detect the non-reportage. Notice is issued under section 139(9) or 143(1) for non-disclosure of income.
If the income tax department receives any information that some income such as bank interest income or income from shares, etc. has not been disclosed by you and the tax man is able to confirm the same, then the income tax department will l send you a notice for non-disclosure of income.
To avoid getting notice: You must collect all your financial statements and list out the income sources from which you received income and then file your ITR. Chadha said, "If an assessee misses reporting a particular source of income in the return, the same will lead to a mismatch with the data already available with the Revenue authorities resulting in the issuance of notice. Hence, before filing the return, it would be prudent to check Form26AS and the details of overseas incomes (in case of resident and ordinarily resident) like overseas bank statements, payslips etc., and ensure that all incomes reflecting therein are disclosed in the return of income."
5. For not declaring investments made in the name of spouse
At times, it may happen that you would have made investments in the name of your spouse but have not shown the income from those investments in your return. In such a scenario, any income from such investments can be taxable in your hands and you have to declare it at the time of filing returns. For instance, as per the income tax law, if an asset is acquired in the name of the spouse through the income of the taxpayer, the income arising out of such asset, if any, needs to be clubbed in the hands of the taxpayer.
Chadha said, "Generally the revenue authorities would issue a notice under Section 143(2) for detailed audit/scrutiny of the tax return filed and income generated through investment in the name of a spouse could be questioned by the authorities during the assessment proceedings. The Revenue authorities could obtain such information through various sources like banks, registrar offices etc. Failure to declare the income therein could be considered as tax evasion resulting in the addition of the income along with interest and penalty.
To avoid getting notice: It is important to note that before filing the return, it would be prudent to consider the income arising to the spouse out of assets acquired out of the income of the tax payer.
Also read: Clubbing of income: When you are liable to pay tax on another's income
6. For filing defective return
If you do not file the income tax return in the correct form, you will receive a defective return notice from the income tax department. You get a defective return notice under section 139(9) of the Income Tax Act. Once received, you need to respond to it within 15 days from the date of receiving the notice. In a scenario like this, if you have incorrectly filed your ITR, you may need to file a revised ITR. You must try filing the revised ITR before the deadline ends.
To avoid getting notice: Check that the return form you are filing your return in is the correct one for the incomes you are reporting.
Also read: Know the correct income tax return form applicable to you for FY 2018-19
Also read: All you need to know about filing income tax return this year
7. If you have done high-value transactions
You may receive a notice if you have done high-value transactions. The income tax department identifies taxpayers who have made high-value transactions in any financial year but not yet filed an income tax return. The department can ask you to mention the source of funds for making such high-value transactions. For instance, if you made large transactions through your credit card, made huge financial investments, or bought a property in a particular year, etc. In such a scenario, the income tax department can send you a notice asking you to reply stating valid reasons or file income tax return within 21 days.
You may get a notice even if you have filed your return within the due date. Kasturirangan said, "Where the taxpayer has significant investments or high-value transactions, a notice u/s 143(2) may also be issued within 6 months from the end of the financial year in which the return is filed. This means that the taxpayer has been selected for tax scrutiny, the depth of which would depend on whether the scrutiny notice is a limited scrutiny one or regular scrutiny."
To avoid getting notice: The taxpayer should send a satisfactory reply mentioning the source of income, if the departments agree, the case gets closed. Else, necessary action is taken by the income tax department if the ITR is also not filed. In case of scrutiny notice too the tax payer has to provide the information sought in the notice to the satisfaction of the income tax department.
8. If your return is picked for scrutiny
You may anytime come under the taxman's lens. The department can randomly scrutinise returns to enforce tax compliance. Therefore, if you receive any notice specifically under section 143(2), it means your return filed is in under scrutiny by your Assessing Officer. The scrutiny can be related to mismatches or inaccurate reporting, return filed and all related documents, or it can be based on predefined criteria issued every year by the income tax department.
When you receive any scrutiny related notice, the first thing you need to do is to check the validity of the notice and then respond to it accordingly in the specified time. If you fail to respond, the department can impose a penalty of Rs 10,000 according to section 272A of the Income Tax Act. So, if you are not able to reply, consult a professional Chartered Accountant and file a suitable reply before you get penalised.
To avoid getting notice: Report all your income and other income taxable in your hands, pay full tax due and in general be tax-compliant. Keep documentary and other evidence as proof of whatever is claimed in your return so that you can use it in case of scrutiny when asked to produce the same.
9. For setting off refunds against remaining tax payable
If you have claimed a refund on the tax paid but there are still some previous tax dues payable by you, the Assessing Officer (A.O) may send you a notice. The A.O will give an intimation in writing to such taxpayer of the action proposed to be taken regarding the refund claimed. The A.O can ask for the pending demands from the previous years to be adjusted with the refund amount.
Chadha said, "Notice is issued under section 245 for setting off refunds against the tax payable. In case there is an outstanding demand for the earlier tax years, the revenue authorities could issue a notice to adjust such demand against the refund claimed by the taxpayers."
To avoid getting notice: Make sure you have cleared all your dues on time every assessment year before claiming a refund. Chadha said, "It is pertinent that the taxpayers check their e-filing portal for any outstanding demand periodically and if there is a demand it has to be ensured that the responses (agreeing/disagreeing to the demand) are submitted within stipulated time (which is generally 30 days from the date of issue of such notice) failing which the authorities would proceed with the adjustment."
10. For tax evasion in earlier years
The Income Tax Act gives the I-T department power to reassess previously filed I-T returns. Mohan said that under section 147 of the Income Tax Act, the department can issue a notice to the taxpayer. An Assessing Officer can pick tax returns for reassessment based on certain pre-defined criteria. Notice for reassessment is sent only when tax officer has reasons to believe that income which was chargeable to tax has escaped assessment. This provision is normally used in cases where tax officer has reliable and corroborative evidence of high-value tax evasion, explains Mohan.
"This notice is issued in cases where the tax department is able to collate enough new information from alternative sources proving that taxpayer has by the reason of fraud, willful-misstatement or suppression of facts evaded taxes," he said.
"The tax officer also has the power to reassess any escaped income under section 148 and also initiate penalty proceedings under section 270A," said Kasturirangan.
To avoid getting notice: You must file your ITR in utmost good faith and avoid evading tax.
Points to note:
Rajat Mohan, Senior Partner, AMRG & Associates said, "Taxpayers, in general, are issued income tax notices under Section 139(9), 143(1), 143(2), 143(3), 245, 144, 147 and 148 of Income Tax Act, 1961 regarding non-filing of ITR, concealment of taxable income, claiming an in genuine tax refund, computing excessive tax losses, long term capital gains (LTCG), scrutiny etc."
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Here are 10 common reasons taxpayers can get an income tax notice and how they can avoid them.
1. For delay filing I-T return
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If you have not filed your return by the deadline, you will receive a reminder notice from the income tax department. You get this notice before the end of the assessment year for which the return is due.Saraswathi Kasturirangan, Partner, Deloitte India said that filing tax return where the individual has taxable income is mandated under section 139(1). The notices for non-filing by the due date are generally automated reminders which point l out the obligation under section 139(1) and remind taxpayers to file their returns to avoid penalties. "However, a notice under section 142(1)(i) may be issued requiring the taxpayer to furnish the return if not filed within the due date," she said.
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If you do not file your return by the due, you will have to pay a late filing fee. Thus, if you miss the deadline and file a belated return for the current financial year before December 31, 2019, then you may have to pay a penalty of Rs 5,000. However, this penalty will increase to Rs 10,000, if the ITR is filed on or after January 1, 2020.To avoid getting notice: You must file ITR before the deadline for filing ITR for a particular assessment year.
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Also read: Missed the income tax return filing deadline? Here's what you can do2. Misreporting LTCG from equity
You need to report any realised long-term capital gains (LTCG) on listed equity and equity-related mutual funds at the time of filing ITR. LTCG above Rs 1 lakh in a year on listed equity and equity-related mutual funds on which STT has been paid will be taxed at 10 percent. Reporting LTCG on equity can be a bit complex for taxpayers from the financial year 2018-19 onwards.
Kasturirangan said that a review of high-value transactions during tax scrutiny enables tax officers to identify unreported capital gains. "While completing the assessment under section 143(3) the officers will include these as taxable incomes, charge interest on tax shortfall and initiate penalty proceedings under section 270A," she said.
Therefore, you should ensure that you have done the right computation and have mentioned the information correctly. A simple calculation error may get you a demand notice, where the tax department can ask you to pay the tax due.
To avoid getting notice: Make sure you get the statement on capital gains either from your broker or directly from the mutual fund house and then mention the correct details accordingly in the form. You should also cross check the LTCG calculation details yourself with account statements and take the help of a tax advisor in case the calculations are too numerous or complicated for you.
3. For TDS claimed not matching with Form 26AS
While filing ITR, the TDS should ideally have to be the same in Form 26AS and Form 16 or 16A. However, there can be several reasons why some details may mismatch. Notices for TDS mismatch are issued under section 143(1). The reason for getting this notice is a mismatch in the TDS reported by the deductor to the revenue authorities and the TDS claimed in the return of income by the assessee.
To avoid getting notice: Amarpal S. Chadha, Tax Partner and India Mobility Leader, EY India said, "As a precaution, before filing the return of income, one could check the TDS reported in the Form 26AS and ensure that the TDS is correctly reported by various deductors and then proceed to file the return of income. If in the case of mismatch, the assessee has to approach the respective deductor to update their reporting."
4. For non-disclosure of income
Revenue authorities obtain information about income of assesses from different sources like banks, employers, tenants, mutual exchange of information between countries etc. If you have not shown some income in your ITR, then you may get a notice from the income tax department if they detect the non-reportage. Notice is issued under section 139(9) or 143(1) for non-disclosure of income.
If the income tax department receives any information that some income such as bank interest income or income from shares, etc. has not been disclosed by you and the tax man is able to confirm the same, then the income tax department will l send you a notice for non-disclosure of income.
To avoid getting notice: You must collect all your financial statements and list out the income sources from which you received income and then file your ITR. Chadha said, "If an assessee misses reporting a particular source of income in the return, the same will lead to a mismatch with the data already available with the Revenue authorities resulting in the issuance of notice. Hence, before filing the return, it would be prudent to check Form26AS and the details of overseas incomes (in case of resident and ordinarily resident) like overseas bank statements, payslips etc., and ensure that all incomes reflecting therein are disclosed in the return of income."
5. For not declaring investments made in the name of spouse
At times, it may happen that you would have made investments in the name of your spouse but have not shown the income from those investments in your return. In such a scenario, any income from such investments can be taxable in your hands and you have to declare it at the time of filing returns. For instance, as per the income tax law, if an asset is acquired in the name of the spouse through the income of the taxpayer, the income arising out of such asset, if any, needs to be clubbed in the hands of the taxpayer.
Chadha said, "Generally the revenue authorities would issue a notice under Section 143(2) for detailed audit/scrutiny of the tax return filed and income generated through investment in the name of a spouse could be questioned by the authorities during the assessment proceedings. The Revenue authorities could obtain such information through various sources like banks, registrar offices etc. Failure to declare the income therein could be considered as tax evasion resulting in the addition of the income along with interest and penalty.
To avoid getting notice: It is important to note that before filing the return, it would be prudent to consider the income arising to the spouse out of assets acquired out of the income of the tax payer.
Also read: Clubbing of income: When you are liable to pay tax on another's income
6. For filing defective return
If you do not file the income tax return in the correct form, you will receive a defective return notice from the income tax department. You get a defective return notice under section 139(9) of the Income Tax Act. Once received, you need to respond to it within 15 days from the date of receiving the notice. In a scenario like this, if you have incorrectly filed your ITR, you may need to file a revised ITR. You must try filing the revised ITR before the deadline ends.
To avoid getting notice: Check that the return form you are filing your return in is the correct one for the incomes you are reporting.
Also read: Know the correct income tax return form applicable to you for FY 2018-19
Also read: All you need to know about filing income tax return this year
7. If you have done high-value transactions
You may receive a notice if you have done high-value transactions. The income tax department identifies taxpayers who have made high-value transactions in any financial year but not yet filed an income tax return. The department can ask you to mention the source of funds for making such high-value transactions. For instance, if you made large transactions through your credit card, made huge financial investments, or bought a property in a particular year, etc. In such a scenario, the income tax department can send you a notice asking you to reply stating valid reasons or file income tax return within 21 days.
You may get a notice even if you have filed your return within the due date. Kasturirangan said, "Where the taxpayer has significant investments or high-value transactions, a notice u/s 143(2) may also be issued within 6 months from the end of the financial year in which the return is filed. This means that the taxpayer has been selected for tax scrutiny, the depth of which would depend on whether the scrutiny notice is a limited scrutiny one or regular scrutiny."
To avoid getting notice: The taxpayer should send a satisfactory reply mentioning the source of income, if the departments agree, the case gets closed. Else, necessary action is taken by the income tax department if the ITR is also not filed. In case of scrutiny notice too the tax payer has to provide the information sought in the notice to the satisfaction of the income tax department.
8. If your return is picked for scrutiny
You may anytime come under the taxman's lens. The department can randomly scrutinise returns to enforce tax compliance. Therefore, if you receive any notice specifically under section 143(2), it means your return filed is in under scrutiny by your Assessing Officer. The scrutiny can be related to mismatches or inaccurate reporting, return filed and all related documents, or it can be based on predefined criteria issued every year by the income tax department.
When you receive any scrutiny related notice, the first thing you need to do is to check the validity of the notice and then respond to it accordingly in the specified time. If you fail to respond, the department can impose a penalty of Rs 10,000 according to section 272A of the Income Tax Act. So, if you are not able to reply, consult a professional Chartered Accountant and file a suitable reply before you get penalised.
To avoid getting notice: Report all your income and other income taxable in your hands, pay full tax due and in general be tax-compliant. Keep documentary and other evidence as proof of whatever is claimed in your return so that you can use it in case of scrutiny when asked to produce the same.
9. For setting off refunds against remaining tax payable
If you have claimed a refund on the tax paid but there are still some previous tax dues payable by you, the Assessing Officer (A.O) may send you a notice. The A.O will give an intimation in writing to such taxpayer of the action proposed to be taken regarding the refund claimed. The A.O can ask for the pending demands from the previous years to be adjusted with the refund amount.
Chadha said, "Notice is issued under section 245 for setting off refunds against the tax payable. In case there is an outstanding demand for the earlier tax years, the revenue authorities could issue a notice to adjust such demand against the refund claimed by the taxpayers."
To avoid getting notice: Make sure you have cleared all your dues on time every assessment year before claiming a refund. Chadha said, "It is pertinent that the taxpayers check their e-filing portal for any outstanding demand periodically and if there is a demand it has to be ensured that the responses (agreeing/disagreeing to the demand) are submitted within stipulated time (which is generally 30 days from the date of issue of such notice) failing which the authorities would proceed with the adjustment."
10. For tax evasion in earlier years
The Income Tax Act gives the I-T department power to reassess previously filed I-T returns. Mohan said that under section 147 of the Income Tax Act, the department can issue a notice to the taxpayer. An Assessing Officer can pick tax returns for reassessment based on certain pre-defined criteria. Notice for reassessment is sent only when tax officer has reasons to believe that income which was chargeable to tax has escaped assessment. This provision is normally used in cases where tax officer has reliable and corroborative evidence of high-value tax evasion, explains Mohan.
"This notice is issued in cases where the tax department is able to collate enough new information from alternative sources proving that taxpayer has by the reason of fraud, willful-misstatement or suppression of facts evaded taxes," he said.
"The tax officer also has the power to reassess any escaped income under section 148 and also initiate penalty proceedings under section 270A," said Kasturirangan.
To avoid getting notice: You must file your ITR in utmost good faith and avoid evading tax.
Points to note:
- You must respond to the notice within the stipulated time. If any scrutiny arises, provide all the relevant details or documents on time that the department seeks from you to verify the necessary details.
- Mohan said, "Tax notices are issued based on tax logics built in the system and taxpayers can avoid these notices only if they ensure that tax returns are filed well within time, income details declared in ITR are in sync with AS 26, limit the use of credit cards to Rs 2 lakh in a financial year, limit the cash withdrawal and deposits in a bank account and report sale/purchase transaction of mutual funds/shares in ITR."
- If you do not respond to the notices, then you may have to pay a huge penalty as per income tax norms. Also, one should file one's return on time and pay the tax due, if any, within the specified period of time to avoid getting notices from the taxman.
Click here for all the information and analysis you need for tax-saving this financial year.
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Once the itr is filled with ca report.They are well lerner,check all facts and statistics of our or your files after that why we you all are comes under scrutiny.Once there is command by present or past time,you file online your gst and itr return why someone ask you have to pay for the some rensum under table because your under crore turnable.But i do feel that some trend has changedLike gstr-9Gst-3 etcYou are helpless to understand that where i ,you or anyone stands to fulfill the requirements of your saints( acoutant,return filler or caLet me know where a person stands who are on margin stand and are not like a big short
- Ashwani
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