It is important to understand how to avoid discrepancies in Income Tax (IT) filings. If not, the Income Tax Department could file a tax scrutiny case which would need the expertise of a lawyer to help resolve.
You as an individual taxpayer would already be aware that the income tax department has taken upon themselves to monitor all transactions of a taxpayer with people with anomalies landing up being questioned. This includes salaried individuals as well. Department has managed to note through the investigations of 12 lakh people who have not fled their income tax returns regardless the reasons. A number that exceeds high value transactions that are over 20 crores and have been observed with scrutiny and Notices/letters to over 1.5 lakh Indian tax payers have been issued already. However it is essential as a taxpayer to deal with these notices, in case of scrutiny despite of innocence. Read on to get an in-depth guide on the same.
When Do You Receive a Case Of Scrutiny For Income Tax?
Here are the simplest but sometimes the most damaged instances where your income tax files may be scrutinized and hence cause you much distress:
- The most common case of scrutiny is not filing your tax returns. The general trend is that even if you fall below the minimal taxation slab which is the annual income of over Rs. 2,50,000, you still have to file your taxes. E-filing of taxes has however reduced the number of defaulters who do not file their taxes in time, but if you are pining over the IT returns filing for more than a couple of years, your income tax portfolio will definitely be subject to a notice and scrutiny.
- If you are filing a sudden reduction of income, since the prior year, your income tax filing may be questioned because one might may not be reporting all their sources of income. However, it is essential to keep it mind that people with businesses and professionals which are subject to volatility may be subject to sudden changes in income. But for salaried individuals, it is best, to inform the cause of fall of income. Also, the pay slips from the employer comes into question, hence in such cases more than one party is scrutinised.
- If you do not report your income from other sources, such as fixed deposits or the interest that you earn from your savings account the income tax department will issue you a case since you have not been completely honest about your income and are infact trying to hide it avoid falling under the tax bracket appropriate for your complete true income.
- The TDS filing and your self-assessment tax declaration has to be synchronized. But if they do not add up, you will be questioned about the lack of similarity between the two.
- You must include all your sources of income. This includes money or property that you may receive in the form of gifts or wealth. Even if you’re not taxed for them other than the wealth tax, it still has to be declared during filing, else you will receive a notice.
- You might get tax reduction benefits from two jobs if you have changed your job in the course of a financial year. This must be reported and obviously only tax benefits from one employer can be availed for one particular period of time. So, you have to come clear of that.
- If you make a claim for a tax deduction refund of a lot more than you were able to, the prior year or you are not able to provide your investment proofs that has significantly allowed you to gain these profits, you will not be considered having given an honest approach when it comes to calculating the claim of refunds. So, avoid going greedy.
- Always inform about your high value transactions. This include:
- Providing the receipts for any Cash deposits that are worth Rs 10 lakh and over
- Submit the bills and payments for any credit card bill which is over Rs. 2 lakhs even if they are bills accrued overseas.
- Notify the IT department of any mutual fund investment that is worth Rs. 2 lakhs and over.
- You also need to mention the purchase of any sort or debentures or binds which are worth Rs. 5 lakhs or over.
- Add sufficient information about the purchase you make of in the equity market which are worth Rs 1 lakh and over.
- If you have bought any immobile property which is worth Rs. 30 lakh or over, this too needs to be informed to the It department.
- Also if you bought any RBI bonds that are worth Rs. 5 lakhs and over, it needs to be mentioned when filing our taxes.
Going through all of the above will also help as a checklist for future reference, to avoid any such anomalies in your IT filings.
How to Deal With Your Scrutiny Cases, issued By the Income Tax Department?
Here are some simple steps to deal with your tax scrutiny cases:
- You first need to check that the notice is actually for you or for somebody with the same name. So, you have to check the PAN no. assigned to the notice since the notice is assigned based on an individual’s PAN no. and not their name.
- You need to then figure out what the issue is actually, for which you are scrutinized. The above section will help you to do this.
- You need to note the validity of the notice i.e. when exactly the note has been issued.
- Check the names of the official in charge and which IT section as issued it. Also check his basic credentials such as designations, address, ward details or circle no ete to make sure that you are not being cheated.
- You will also get a DIN (Document Identification Number if the notice has been issued online or by mail.
- You then need to collect all the documents and cover letter which will address the issue. It is highly suggested that you take the help of an income tax lawyer inorder to do so. Since, this is a crucial step, you have to consult with an expert on the same and ensure that your documentation serves as proofs.
In the end, if your situation is grave and you have been caught red-handed on income tax evasion, a lawyer should be your first-aid and not pondering over the same. Also, professional help though is an added expense still helps to get off these issues quicker. It’s best to avoid these instances by coming honest every time you file your taxes. You can be aloof of all the hassles and gain the peace of mind required to continue with your normal life without added headaches and expenses such as tax scrutiny.