How To Avoid a Tax Notice?
In this article, we are going to discuss the major 9 Reasons For Getting Income Tax Notice. Whatever may be the reason behind the notice, you should respond to it as quickly as you can.
The Income Tax Department has launched a drive to ensure greater tax compliance. In recent months, specially after Demonetisation, thousands of taxpayers have been served notices after discrepancies were noted in their tax returns or their TDS details with respect to the amount of cash deposited. Tax authorities now have an integrated database on taxpayers and can track almost all financial transactions of an individual.
Tax notice is served through emails and if you get a Tax notice. You should carefully go through the notice and understand what it is about. It may not always be bad news. Often, the I-T department also sends out refunds through notices.
Whatever may be the reason behind the notice, you should respond to it as quickly as you can. Remember not to ignore an income tax notice. Most tax notices are about issues that need immediate attention and prompt correction.
9 Reasons For Getting Income Tax Notice
Here are the most common reasons of income tax notices :
1. If you do Not file Income Tax Return
- According to income tax law, if your gross income is above the exempted limit of Rs. 2.5 lakh in case of individuals, Rs. 3 lakh for senior citizens (60-80 years of age) and Rs. 5 lakh for super seniors (above 80 years), you are liable to file a tax return.
- Also, irrespective of the fact that your employer has deducted the tax at source (TDS) or not, you have to file an income tax return. Many people also believe that since they don’t have a tax refund to claim, they don’t need to file return. But that’s a misconception.
- The Income-Tax Department often sends out reminders to those who haven’t filed their income tax returns. There is a penalty that the department can levy in case of delay in filing returns. If you receive such a reminder, file your returns immediately. Income Tax Notice under section 142(1) is served for this.
2. Discrepancy in your tax returns
You might get a tax notice if there is a problem with the returns that you have filed. It is possible that you may have forgotten to declare some income, you may have claimed a deduction under the wrong section or the information provided by you is incomplete. In such situations, you should review the notice and your returns and rectify the error.
3. Error in TDS amount
- You may get a notice by the department if there is any mismatch in the amount of TDS which you have shown in your return and the actual TDS that has been deducted during the year.
- For example, In case, your employer forgot to file TDS return but the same amount is shown in your income tax return then there arises a situation of mismatch.
- While filing your return always make sure that the amount in form 26-AS matches with the amount you show in your return.
4. Review of documentations
- When you file your tax returns, you don’t need to attach any documents as proof of exemption or deduction. The Income-Tax Department expects you to furnish the correct information in good faith.
- However, the department may ask to review some documents on the basis of which you have filed your returns. In such cases, you should immediately submit the documents that have been called for.
5. Reporting of high-value transactions
There are certain high-value transactions like credit card purchases exceeding Rs 2 lakh, mutual fund investments of more than Rs 2 lakh, cash deposits in a bank of more than Rs 2.5 lakhs after demonetisation, sale or purchase of property of more than Rs 30 lakh, etc that need to be reported to the Income-Tax Department by the concerned institutions and can attract notice.
6. Investments in the name of family members
- Taxpayers often purchase assets or make investments in the name of their family members–spouse or children. This is done to evade taxes, but any income from such investments attracts taxes in your name.
- This comes under clubbing rule. This income should be declared at the time of filing your returns or you may end up garnering the attention of the tax department. You should watch our video on this topic for details.
7. Scrutiny at random
The Income Tax Department may randomly select your tax return to scrutinise for more details to enforce tax compliance. If you receive such a notice, check the validity and respond to it accordingly in the time allotted.
8. Hiding interest income
- Many people knowingly or unknowingly don’t include the interest income from their saving account, fixed deposits and recurring deposits in their income tax returns. The interest from saving account up to Rs. 10,000 is tax deductible under Section 80 TTA while interest on fixed deposits and recurring deposits is fully taxable.
- In case of fixed deposits and recurring deposit, a TDS will be deducted in case the interest income exceeds Rs. 10,000 in a financial year. But whether the interest is taxable or not, you have to disclose all your interest income in your tax return. So reveal the interest income in your return and then avail the deduction if any. Not doing so can result in a tax notice.
9. Sudden changes in income or investment levels
- If there is a sudden significant drop in income or a sudden sharp increase in income levels, the tax department will be on high alert. If you have purchased real estate property or assets of very high value or there are many high value transactions in your bank account, the income tax department can get curious and send you a notice. Also, if you have received gifts above Rs.50,000 in a year and have not paid tax, you may get tax notice.
- Again, remember, you should never ignore a Tax notice. That is all we have on this topic, if you have any question, please do write in the comment section below and do not forget to subscribe to our channel. Have an awesome day ahaead.