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.