Every year the Income tax department sends thousands of notices to the taxpayers. They are not limited to people who have wads of cash stuffed under their bed or with investments in Benami properties, but also include many innocent defaulters, who may not even know they are supposed to do so. So if you have received a notice by the income tax authority, do not get perplexed and understand why you have been sent a notice and what you must do about it.
Why do you get an income-tax notice
Not filing your tax returns - A lot of taxpayers have received notice for not filing their tax returns. According to income tax law, if your gross income is above the exempted limit of Rs 2.5 lakh in case of individuals, Rs 3 lakh for senior citizens (60-80 years of age) and Rs 5 lakh for super seniors (above 80 years of age), you are liable to file a tax return.
Not filing returns is not so serious offense if all your taxes are paid. The tax laws allow the taxpayer to file delayed returns even after the due date has passed. But if you have unpaid taxes, there will be a penalty of Rs 5000 with interest.
TDS error - If there is any discrepancy in the TDS deposited by your employer and the income tax return filed by you, you may get an income tax notice. Check your Form 26AS to verify if all the tax deducted on your behalf has been credited to you. If a wrong TDS has been credited to your account or it has been credited to a wrong PAN, despite it being deducted from your salary, you may come under scrutiny.
Not reporting interest income - Income from fixed deposits, recurring deposits, tax-saving bank deposits, and infrastructure bonds is fully taxable. The tax exemption of Rs 10,000 a year under Section 80TTA applies only to the interest earned on the balance in the saving account.
You must reveal the interest income in your tax return and then avail of the deductions if any. Not doing so can result in tax notice.
Concealment of your income - If your income, expenditures, and investments differ from the one declared in your return, you will get an income tax notice. You may be asked to provide clarifications or relevant documents for re-calculation of your income. Tax authorities can also send notices pertaining to a number of years gone by.
Banks, mutual funds, credit card companies, etc. are supposed to report certain high-value transactions to the tax authorities. They have your PAN and other details so you can't escape past them.
Defective income tax return - If the income tax authority finds any error in your income tax return, they can issue a notice under Section under 139 (9) and direct you to file a revised return on income after correcting the error.
Not reporting income from an old job - When an individual switches his job, the new employer doesn't take into account the income earned from the previous job and offers tax exemptions and deductions to the employee all over again. However, this discrepancy may put you in odds with the income tax department. If some tax has been deducted on the income from the first employer, it will be reflected in your form 26AS and if you don't report that income, the discrepancy will be easily picked up and you will receive a tax notice.
Not reporting foreign assets - Not reporting overseas assets could get you prosecuted under Black Money Act and the penalty can be as high as Rs 10 lakh. Taxpayers cannot afford to be unsure of their foreign income and asset. Not just limited to salaries or perks, revenue generated out of freelance activities conducted overseas needs to be reported under foreign assets. This also includes gifts. Also, all foreign bank accounts, whether it is operational or not, and even where you are merely a signing authority should be reported.
Concealing tax-free income - Tax-free income includes interest earned on PPF, tax-free bonds, life insurance properties, capital gains from stocks, and a gift from specified relatives. Even if you are not liable to pay any tax on them, all your interest income and saving bank interests has to be reported in the ITR.
How to handle a situation when you get an income tax notice
You should not get worried if you receive any notice from the income tax authority. Many notices are simply taxed demands that can be dealt with without any fuss. You should collect all your necessary documents relating to assessment proceedings including Form 16, Form 16A, details of your income and expenses, bank statements, credit card statements, details of gifts, loans, investments, etc. On the basis of the above-mentioned documents, a proper reply to the notice should be prepared. If the issue is related to common cases such as TDS claims, not filling of tax returns, etc., the issue will be resolved within a day's time and more complex issues will be examined in detail and handled personally.
Every year the Income tax department sends thousands of notices to the taxpayers. They are not limited to people who have wads of cash stuffed under their bed or with investments in Benami properties, but also include many innocent defaulters, who may not even know they are supposed to do so. So if you have received a notice by the income tax authority, do not get perplexed and understand why you have been sent a notice and what you must do about it.
Why do you get an income-tax notice
Not filing your tax returns - A lot of taxpayers have received notice for not filing their tax returns. According to income tax law, if your gross income is above the exempted limit of Rs 2.5 lakh in case of individuals, Rs 3 lakh for senior citizens (60-80 years of age) and Rs 5 lakh for super seniors (above 80 years of age), you are liable to file a tax return.
Not filing returns is not so serious offense if all your taxes are paid. The tax laws allow the taxpayer to file delayed returns even after the due date has passed. But if you have unpaid taxes, there will be a penalty of Rs 5000 with interest.
TDS error - If there is any discrepancy in the TDS deposited by your employer and the income tax return filed by you, you may get an income tax notice. Check your Form 26AS to verify if all the tax deducted on your behalf has been credited to you. If a wrong TDS has been credited to your account or it has been credited to a wrong PAN, despite it being deducted from your salary, you may come under scrutiny.
Not reporting interest income - Income from fixed deposits, recurring deposits, tax-saving bank deposits, and infrastructure bonds is fully taxable. The tax exemption of Rs 10,000 a year under Section 80TTA applies only to the interest earned on the balance in the saving account.
You must reveal the interest income in your tax return and then avail of the deductions if any. Not doing so can result in tax notice.
Concealment of your income - If your income, expenditures, and investments differ from the one declared in your return, you will get an income tax notice. You may be asked to provide clarifications or relevant documents for re-calculation of your income. Tax authorities can also send notices pertaining to a number of years gone by.
Banks, mutual funds, credit card companies, etc. are supposed to report certain high-value transactions to the tax authorities. They have your PAN and other details so you can't escape past them.
Defective income tax return - If the income tax authority finds any error in your income tax return, they can issue a notice under Section under 139 (9) and direct you to file a revised return on income after correcting the error.
Not reporting income from an old job - When an individual switches his job, the new employer doesn't take into account the income earned from the previous job and offers tax exemptions and deductions to the employee all over again. However, this discrepancy may put you in odds with the income tax department. If some tax has been deducted on the income from the first employer, it will be reflected in your form 26AS and if you don't report that income, the discrepancy will be easily picked up and you will receive a tax notice.
Not reporting foreign assets - Not reporting overseas assets could get you prosecuted under Black Money Act and the penalty can be as high as Rs 10 lakh. Taxpayers cannot afford to be unsure of their foreign income and asset. Not just limited to salaries or perks, revenue generated out of freelance activities conducted overseas needs to be reported under foreign assets. This also includes gifts. Also, all foreign bank accounts, whether it is operational or not, and even where you are merely a signing authority should be reported.
Concealing tax-free income - Tax-free income includes interest earned on PPF, tax-free bonds, life insurance properties, capital gains from stocks, and a gift from specified relatives. Even if you are not liable to pay any tax on them, all your interest income and saving bank interests has to be reported in the ITR.
How to handle a situation when you get an income tax notice
You should not get worried if you receive any notice from the income tax authority. Many notices are simply taxed demands that can be dealt with without any fuss. You should collect all your necessary documents relating to assessment proceedings including Form 16, Form 16A, details of your income and expenses, bank statements, credit card statements, details of gifts, loans, investments, etc. On the basis of the above-mentioned documents, a proper reply to the notice should be prepared. If the issue is related to common cases such as TDS claims, not filling of tax returns, etc., the issue will be resolved within a day's time and more complex issues will be examined in detail and handled personally.
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