Understanding Income Tax Notice
Getting an Income Tax notice from the Income Tax department is a big deal for many and can be quite stressful. But to say the truth it is over hyped at times. Hearing from the department is not always a bad thing. Sometimes, it may be good news like some money being refunded to you.
If you receive an Income Tax notice, the first thing to do is read it thoroughly with a calm mind and understanding exactly what it is for. Check all the basics like if it really meant for you, check your PAN, assessment year etc.
When can you expect Income Tax Notice?
- Variation in Return Filed by you: There may also be some variance in the amounts that you declared while filing the returns. The discrepancy may arise because you may have claimed a deduction under the wrong section or the information is incomplete or you may have made a mistake or forgotten to declare some incomes. These notices are automatically generated by the software of the IT Department. Sometimes even if you have done everything correctly as per your knowledge you still may receive the notice due to some software error.
- TDS Amount Error: It is quite a common issue that there is some mismatch in the TDS amounts filed. Sometimes your employer may have made a mistake or delayed filing the TDS return. If you encounter such an issue, immediately contact your employer to recheck the TDS amount credited to you.
- Documentation: Sometimes the Income Tax department may want to review certain documentation based on which your returns were filed. In such cases, provide the required documents immediately to the IT department.
- Tax Returns Not Filed: If you have not filed your tax returns yet, you can surely receive such notice. Income tax return filing without any delay. Delaying in filing tax returns can sometimes lead to a penalty of up to five thousand per year. If taxes are not paid in such cases, 1% interest per month from the due date is charged from the assessee. The IT department can remind you about unfiled returns for the previous 6 assessment years.
- Investments in the name of spouse: Many people try to evade taxes by purchasing assets (any kind of investment in mutual funds, property, shares, FDs etc.) in name of their spouse, child or other close family members. But the government won’t let you do such a thing under Section 64 of the Income Tax Act. If you purchase assets in name of a close family member and any income generated out of these assets will be taxable. Make sure to declare such income while filing for the return otherwise you will receive a notice.
- High-Value Transactions: If you carry out any high-value transactions with any entity you have to update the Income Tax department of such transactions. This is to ensure that taxes are imposed on such transactions in a timely manner. If you fail to do so IT department will be sending you a notice.
- Non-disclosure of assets for wealth tax: Assets (land, jewels, cars etc.) whose net value is over Rs. 30 Lakh are liable to wealth tax. You have to pay wealth tax at the rate of 1% of the amount that is over Rs. 30 Lakh limit. Non-disclosure or failure to pay taxes on such assets can get you an Income Tax notice. If unsure about the exact value of the asset you can approach government approved valuers.
- Random Scrutiny: In order to enforce tax compliance, the Income Tax department has started randomly examining/inspection under Section 143 (3). If you receive such a notice, check its validity and response to the Assessing officer within the duration along with the requested documents.
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