If you have not filed your income tax return for some years, or there are discrepancies and mistakes in the income tax return filed, you may get a notice from the Income Tax Department seeking clarifications. Now, these notices are not an arrest warrant, so do not panic. Because of online filing of tax returns and stricter norms over the return-filing procedure, monitoring of income tax payments and returns have become easier for the taxman. This means that they are able to clear files quickly and are able to get back to the taxpayers on even minor problems in the ITR filings.
Reasons Why you could get an I-T Notice?
Let us first understand the various reasons for which you might get an Income Tax notice.
- Delay or Non-Filing of Income Tax Return: If you have not filed your income tax return in any of the previous 6 tax assessment years, you could be sent a notice for delay or non-filing of income tax returns. If you have filed the returns, and the taxman has made a mistake, then you could simply send them the Income Tax Return – Verification (ITR-V) acknowledgement/receipt from the I-T department to confirm your innocence. If you have not filed the returns, you might have to pay a penalty of Rs. 5,000 a year. If the tax has been adequately deducted from your salary by your employer, the assessing officer could decide not to penalise you, though. But if there is some tax yet to be paid to the I-T Department, you may have to pay 1% interest per month on the income tax dues from the due date.
- Discrepancy in Tax Credit: Tax Deducted at Source (TDS) Certificate shows the amount of tax deducted from your salary or income by your employer. Form 26AS is the Income Tax Department document showing the actual tax deducted, actual tax received, advance taxes, refunds, etc. If there is any discrepancy between the two tax documents, you may be issued an I-T notice. It could be that the employer has collected TDS but not paid to the I-T Department, or that the tax collected has been credited to some other account. In this case, you need to contact the employer for rectification and file a rectified return.
- Wilful Concealment of Income: If you have hidden any of your incomes from the I-T Department – from sale of capital assets, interest on fixed deposits and savings accounts, rent received on your property – then you are guilty of non-disclosure of income to the government. Any transaction done through your PAN and registered accounts can be tracked by the I-T Department and there is little you can do to avoid being pulled up. If you have concealed your income to evade taxation, the department could penalise you 100-300% of the tax due.
- Concealment of Assets: If you own unused land, property vehicle, jewellery, paintings and other high-value assets, you have to declare it towards wealth tax computation. Wealth tax of 1% is applicable if your asset-value is more than Rs. 30 lakh. If you own assets worth more than Rs. 30 lakh – except your first home – you are liable to file wealth tax return as well. Failing to do so can also attract a notice from the I-T Department.
- High-Value Transactions: If you have made transactions in big amounts – whether you have quoted your PAN or not – you have to declare it to the government. The I-T Department keeps an eye on individuals who have deposits worth Rs. 10 lakh or more, has mutual fund investments of Rs. 2 lakh or more, or has credit card bills in the excess of Rs. 2 lakh. Sale or purchase of property worth Rs. 30 lakh or more, and debentures and bonds worth Rs. 5 lakh or more annually also comes under the department’s purview. If your income is less than your expenditure, the Income Tax Department can ask you to furnish the details of the transactions and your proof of income.
- Investing in the name of Family Members: According to Income Tax Act’s Section 64, any income from asset bought or investment made in the name of close relatives is added to the income of the person making the investment, and taxation is applicable accordingly. So if you have invested in property, deposits, shares and debentures, or insurance policies in the name of your spouse, parents or children, it does not mean that you are exempt from declaring it.
Replying to I-T Notices:
Income Tax notices can be scary, considering the penalties involved. But panicking will get you nowhere. So first you need to read the notice carefully and figure out what the taxman wants. Submit all the documents and information that the department is seeking. If any taxes are due, file it before the due date. And if there is any mistake in the ITR, file a rectified return.
If you have been asked to personally report to the I-T Department, you can either go yourself or authorise a tax lawyer or expert to check the return and do the needful.
How to Reply to Notices Online:
All the letters sent by the I-T Department to you can be seen in your profile on the e-filing portal of the department. If you are not registered on the online tax portal, you can do that as easily as you register for a new social media site.
- Log in to the portal and find the ‘Compliance’ tab, where you can see the non-filers information. You can view the notice and post a reply in the section ‘View and Submit Compliance’.
- Under the ‘View and Submit Compliance’ tab, you will find a ‘Filing of Income Tax return’ option through which you can provide the response related to ITRs. You can either choose: ‘ITR has been filed’ or ‘ITR has not been filed’. If the ITR has been filed, you need to input the mode of filing, date of filing and the acknowledgement number (which can be seen in your ITR-V).
- If the ITR has not been filed, you can input one of these reasons:
- Return under preparation
- Business has been closed
- No taxable income
Under Others, you need to provide the exact reason through the ‘Remarks’ section.
- On the second tab on the page – ‘Related Information Summary’ – you need to input the information relevant to the queries raised by the Income Tax Department, based on information received from third parties. The options under this section are:
- Self-Investment/expenditure is out of exempt income: If the investments or expense made out of income exempt from income tax.
- Self-Investment/expenditure is out of accumulated savings: If the investments or expense is made out of the money you have saved over the years.
- Self-Investment/expenditure is out of gifts/loans from others: If the investments or expense made out of money loaned or gifted by someone.
- Self-Investment/expenditure is out of foreign income: If the investments or expense made out of income received from outside the country.
- Self-Income from transaction is exempt: If the income or receipts belong to you and are exempt from income tax.
- Self-Income from transaction is below taxable limit: If the information pertains to you and your income is below taxable limit.
- Self-Income from transaction relates to different assessment year: If the information received pertains to a different assessment year and not as quoted by the third party.
- Self/Not known: If the information received from third parties is related to REASONS other than those mentioned above.
- Other PAN: If the information furnished by third parties does not belong to you but to someone else. You need to quote the PAN of the other person to whom this pertains.
- Not known: If the information provided by third parties is not known to you.
- I need more information: If you require more details on the information provided.
- After choosing the appropriate answers, you can submit the response. Once submitted, you will be able to take print out for your records.
- The ‘View My Submission’ option also allows you to see the reply you have posted.
- If the I-T Department is satisfied by your response, it will close the case. The status of the case can be obtained by signing in to the e-filing portal.
- If you haven’t filed Income Tax Return, further action will be taken.
Things to Remember:
- Reply to the notices within the deadline – which is generally 30 days.
- When replying to an Income Tax notice, attach a copy of the documents to clear you of the charges – income proofs, investment proofs, etc.
- If you are unsure of how to proceed, go to a tax consultant.
- You could go to jail if you do not reply to Income Tax notices, so take action promptly and as necessary.