Income Tax Notice

Income Tax Notice: Overview

It can be very stressful to get a notice from the Income Tax department. However, getting a notice from them does not always mean trouble and does not imply a crime has been committed. It might be just some information about refund or they might be informing you about some error in your returns.

There are many reasons for which you might receive a notice and thus, understanding the same will help in handling the situation in the best possible manner. You can seek professional help for better understanding.  One thing that must be remembered is that you should never ignore the notice you receive and reply to it within the stipulated time with all the information needed. Failing to do so will cause further problems, a penalty and in some cases, can lead to imprisonment also. After demonetization, there are many people who are under scrutiny and many will be receiving notices and thus, handling them in a proper way is the best way to avoid complications.

Reasons Why You Might Have Got a Notice

Following are some of the main reasons why you might receive a notice from the Income tax Department:

  • Returns Not Filed

It can happen that you missed filing your return while your employer has deducted the tax. It is also possible that you get filed your returns after the due date. In both these scenarios, you will be sent a notice asking you to file returns within the given time, else you can be penalized. The tax officer can send a notice not only for the present but for the last six assessment years. Usually there is no penalty if there is no default history. However, an interest of 1% per month is charged if any interest was due.

  • Tax Credit Mismatch

With respect to your returns, there are two main documents. One is the Form 16 which has all the details of your TDS or Tax Deducted at Source. The other is Form 26 AS, which has all the information related to your taxes like refund, tax deducted etc. This document issued by the IT department against your PAN number. If there is a mismatch, the department will work on the basis of the figure in Form 26AS. A mismatch also does not necessarily indicate that you are evading taxes. Sometime there can be a calculation error or fault at the end of the employer. In either of the cases, taking corrective action is not difficult, and once done, the necessary documents should be provided to the assessing officer in the IT department.

  • Non-Disclosure of Income

Today, hiding information has become extremely difficult as the tracking system of the IT department has improved by leaps and bounds. It has been noticed that people do not report capital gains from selling shares or bonds or rental incomes or interest from their fixed deposits. Hiding such incomes from the department is considered to be a serious offence and attracts penalty and sometimes prosecution.

PAN card has been made mandatory while investing and thus, tracking for the IT department also has become easier. Non-payment of taxes or concealing income can attract a penalty from 100-300%. Thus, everyone needs to be very careful while filing returns that they do not miss on important information. One important thing that you must know is that only short term capital gains are taxable whereas there is no tax on long term capital gains.

  • Non-Disclosure of Assets

Many people in India do not know that if they hold unproductive assets like vacant house, urban land, gold, personal car, paintings, expensive watches etc, and if the aggregate value of all assets exceed 30 lakh, they are liable to pay wealth tax. For the amount above Rs.30 Lakh, tax is levied at the rate of 1%. The first home that individual holds is exempted from any tax. For filing the wealth tax, valuation of the property needs to be done and for this help can be taken from government approved valuers. Jewelry is valued at the market price whereas the valuation of the second house is done on the basis of the rental income it gets.

  • High Value Transactions

The IT department can send a notice to any individual who has had any high value transactions if you have not quoted your PAN number.  The tax department has instructions to analyze individuals who have credit card purchases exceeding 2 lakhs every year, have cash deposits in bank accounts of more than 10 lakhs or have purchased debentures and bonds worth more than 5 lakhs in a year. Any sale or purchase of property with a value exceeding 30 lakhs will also catch the attention of the department.

The system has been set up so that the entity, with which the transaction was done, has to send the required information to the department. Thus, if you do not disclose the income from these transactions, you are bound to get a notice from the IT department.

  • Investment in the Name of Spouse

In the hope of evading taxes, people tend to buy properties in the names of their spouse or other close family members. There is nothing wrong in investing in someone else’s name in the family, but one must declare the same in their IT returns. If you are able to establish that they have funded the transaction on their own, then you will not be taxed. If there is any income generating from the asset, it needs to be clubbed with the income of the person investing and thus, it will be accordingly taxed. Not furnishing this information to the IT department will lead to getting a notice.

How is the Notice Sent?

The IT department sends the notice to the email ID provided at the time of filing the returns. Also, a hard copy is sent on the address mentioned in the PAN details.

The IT Sections

The notice is sent under the following sections:

Section 142

Under this section, the notice is sent to the tax payer to scrutinize the documents and accounts that they had submitted while filing the IT returns.

Section 143(1)

Under this section, the taxpayer receives a notice if an adjustment or additional tax needs to be paid or there was some incorrect information provided or there was a calculation error.

Section 143(2)

Notice under this section is received after a detailed enquiry has been done by the assessing officer.

Section 148

If the assessing officer feels some income has been missed, a notice is sent under this section as the income will need to be reassessed.

Section 156

This notice is about some dues which the tax payer owes to the department. This can be some interest, penalty, fine, tax etc.

What To Do After Receiving the Notice?

It should be repeated here, that any notice received from the Income tax department always does not mean trouble. Thus, you should never ignore any tax notice that you receive. Stressing on the notice is also not helpful and thus, it has to be tackled in a calm and systematic manner. If you do not comply to the notice, you can be penalized for Rs.10,000. This is besides the tax amount or penalty that can be levied on you.

After you receive the notice, you should do the following:

  • Confirm Personal Details

First and foremost, verify the basic details entered in the notice like name, PAN number and address. The document identification number should be checked if you have received an e-notice.

  • Confirm Details of the Sender

Any notice issued by the IT department will have the details of the assessing officer who has sent the notice. Confirm details like name, stamp, designation, address and signature besides the income tax ward and circle have to be mentioned in the notice.

  • Understand

You should read the notice and completely understand why the notice has been sent and what information the IT department is asking for. In case of any doubt, you must consider a professional who can help you.

  • Keep the Envelope

The Speed Post number proves the date when the notice was sent and this can be very helpful in case of any dispute.

  • Make copies

The tax notice that you receive from the IT department is a very important documentation and in order to avoid any problems, you must make soft and hard copies and save them for future reference.

  • Check Validity

There are time periods clearly mentioned within which the tax assessor can raise queries under various sections. Once you receive the notice, check the section and if the enquiry has been raised after the time has lapsed you can consider it to invalid.

Once you have checked the above, you must take the notice seriously and go ahead with the required actions. For some notices like refunds, you only need to take a print and keep for the records. If you have paid less tax or have missed filing your returns or have missed some income, you should immediately pay the tax and e-file the revised returns. If the tax department has found that you have concealed income, you will need to take professional help of a Chartered Accountant and address the issue.

Points to Note

The following points must be noted and remembered in case you receive an IT notice:

  • Never ignore the IT notice.
  • Respond to the notice with all the necessary information and documents within the stipulated time. If the complete documents are not available, you can request for some time but do send what is easily and readily available.
  • You should communicate with the IT department if there is any delay in sending the paperwork. This will not only keep them in the loop but also show your intent is clear and you will comply with the requirements of the assessing officer.
  • Sometimes for random scrutiny, the document list is not specified by the department. In such a case, you must collect all documents which will support your answer and submit them.
  • When all the documents and information are ready, write a cover letter giving all details. In this letter, try and address the query raised point wise and also give a list of documents you are sending along with it.
  • You must make and keep a few copies of the documents and the letters that you are sending. This also acts as a reference in case of any another query is raised after you submit the response.
  • When submitting the reply, you must try and take an acknowledgment from the department stating that they have received the information. This will act as a proof if there is any dispute at a later date.

Remember, it is not the end of the world if you receive a notice from the IT department. You should firstly try and double check all information when filing your returns every year. This will anyway lead to reduced chances of getting any notice. Even if after that, you do receive a notice, you must stay calm, check the validity and then address it in the best possible manner. Some notices might want the tax payer to be present to answer the queries. In such a case, you can either gather all information and go or you can also employ a tax expert who will understand all the queries and give appropriate replies. Ignoring a notice is an option that does not exist. If you are not sure of handling the matter, you can always take help from your chartered accountant who will assist you in not only understanding, but also to answer it.

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