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Major Reasons, Why Income Tax Dept Sends a Return Notice to Taxpayers

Getting a tax notice from the income tax department is a big deal for the taxpayer. But this is not the situation to panic, in such a state the taxpayer must resolve error because of which he got the notice from the department

Getting a tax notice from the income tax department is a big deal for the taxpayer. But this is not the situation to panic, in such a state the taxpayer must resolve error because of which he got the notice from the department. They may even ask for help from experts.

Giant businesses hire experts to file the return on the company’s behalf and easily weave through the complexities but for individual or small taxpayer, this task is a little difficult. On a good note, CA Firms have come up with services to facilitate them even.

The reason may be anything, experts say that taxpayers generally face notices under Section 139(9), 143(1), 143(2), 143(3), 245, 144, 147 and 148 of Income Tax Act, 1961 regarding late or non filing of ITR, hiding of taxable income, claiming a more than actual tax refund, computing excessive tax losses, long term capital gains (LTCG), scrutiny etc.”

There are 10 Possible Reasons why a Taxpayer may get Return Notice from the Department:

Late Filing of Income Tax Return

If you fail to file the return before the due date, you will come in the cordon of the tax department. The department will send you a notice before the end of the assessment year for which the tax is due.

In India, valid under section 139(1) each person registered as a taxpayer must file a return under before deadline. Someone not filing the return invites the return notice from the tax department under the obligation of section 139(1).

There is a penalty for the taxpayer who fails to file the return on time. If you pay the tax before December 31, 2019, then the late fees will be Rs 5,000. However, this penalty will be doubled to Rs 10,000, if the ITR is filed on or after January 1, 2020. The taxpayers can file the income tax return by Gen IT software. The company provides free 10 active hours trial version with full package of the software.

Inadequate Information Regarding LTCG from Equity

Tax Department needs you to provide the details of each and every source from which you are earning. LTCG above Rs. 1 Lakh in a year from any registered equity, Mutual Funds or interest from banks are taxable under law. 10% tax is levied on such incomes.

It is easy for the tax officers to bring in front unreported capital gains by unveiling large valued transactions during tax analysis. “In the end of the assessment year under section 143(3) such earnings will come under the cordon of taxable income on which the interest will be charged and penalty will be imposed under section 270A,” say experts.

So to avoid future inconvenience one must compute and furnish the LTCG accurately to the tax department. One must even cross-check LTCG calculations. Manipulations in the return documents cannot be hidden from the tax department. Even a calculation or entry mistake can lead to a return notice from the department.

TDS Claimed Mismatching Form 26A

One must be conscious about the fact that while filing returns, TDS (Tax Deducted at Source) should match Form 26AS and Form 16 or 16A. There may be chances that some details in the TDS may mismatch to the Form 26AS or Form 16 or 16A. However, the major cause of getting the notice is that the TDS reported by the deductor does not match the TDS claimed by the assessee.

The only way to escape is properly checking the TDS reported in the Form 26AS. One must go through all the relevant forms and check whether the TDS is correctly reported on not. In case of any fault, he has all the rights to approach the deductor and as for him clarifications also if someone wants to learn how to file an income tax return without form 16.

For Hiding Actual Income

Nothing can go unseen from the eyes of the tax department. Tax department extracts information of taxpayer’s income via banks, employers, mutual funds, tenants, communication between countries, etc. A taxpayer invites the notice from the department if he fails to furnish his accurate income in the ITR filing. Notice is issued under section 139(9) or 143(1) for non-disclosure of income.

The best way to keep track of your income is that gather all the financial statements and list the sources of your income. The method will save your time and efforts while giving you absolute numbers of your total income received in the year. Experts say that if a taxpayer fails to provide the accurate knowledge of his income in the ITR then it will get mismatched with the data already available with the tax governance which will lead to the notice issued by authorities. Before filing the income it is advised to go through Form 26AS and the details of overseas incomes (in case of resident and ordinarily resident) like overseas bank statements, payslips etc. to secure your ITR filing from any irrelevance.

Not Reporting the Assets Acquired in the Name of the Spouse

There may be instances when you have taken property or made any investment in the name of your spouse but you fail to deliver the information of the income generated from that property or investment. According to the law, investments made in the name of the spouse and the income generated from such investments need to be mentioned in the ITR furnished by the taxpayer.

Usually, the notice is issued by the tax governance under section 143(2) asking for the detailed analysis of the income filed by the taxpayer and also the income gained by the investment in the name of the spouse. Information can be extracted via bank accounts, registrar offices, etc. If you fail to deliver the accurate knowledge of the income in the ITR, it will be considered as tax evasion and you have to face penalties and other interests.

To avoid the situation, one must always mention the income generated from the investments made in the name of the spouse in the ITR.

For Filing an Improper Return

ITR filed in an incorrect form will invite a notice of ‘Defective Return’ from the tax department under section 139(9). The taxpayer needs to furnish the revised ITR to the department within 15 days from the date of receiving the notice. If you have already received the notice from the tax department, try to furnish the revised returns before the deadline to escape further disadvantages

As a precaution, one must always check the relevance of the form he is filling and the information he is entering in the return.

If You Have Done Huge Transactions

The department has tools to unveil the taxpayers who have made high amount of transactions during the financial year but have not filed ITR. In such a case, the accused may be asked to provide the details of the sources of funds for making such huge transactions. For instance, if you have made the huge transactions from your credit card or bought a property or made financial expenses, the department will ask you to furnish the valid reasons or pay ITR for the same within 21 days.

Please Note: The taxpayer may get the notice from the department even when he has filed the return. Experts say if the taxpayer has made any huge investment or transaction, the notice under section 143(2) may be issued within 6 months from the year return has been filed by him. The notice indicates that the taxpayer has been chosen for tax analysis by the governance.

To prevent the situation, the taxpayer must revert properly to the tax government mentioning the source of income or any other relevant details. The case gets closed if the tax authority agrees to your statement. In the case of scrutiny, the taxpayer has to provide accurate information asked in the notice and satisfy the governance if he wants to easily weave through the situation.

If Your Return is Selected for Scrutiny

The tax governance can anytime issue a notice under section 143(2) to analyze your ITR. The department can anytime analyze your ITR to impose tax compliance. The scrutiny can be because of some mismatches or improper calculations or reporting from the taxpayer’s side or any other prescribed criteria.

To cope up with the situation, firstly study the notice check its validity then revert to the authority accordingly. You can even take help of experts on the field. If you fail to revert the penalty of Rs. 10,000 will be levied by the tax department under section 272A of ITA. Furnish the details of all the taxable income, pay full due tax and always be alert regarding tax compliance. Keep the with you all the proofs which you might need at the time of scrutiny.

Balancing Present Refunds Against Remaining Payable Tax

If you are claiming for the refund of the tax paid by you but the department still owe you previous taxes, in such a situation the Assessing Officer (AO) will send you a notice regarding the same. AO may ask you to settle the previous taxes in the refund amount.
Notice is issued by the tax governance under section 245 for adjusting the refunds with the remaining tax payable by the taxpayer.

To avoid such a scenario, make sure that you don’t have any dues remaining with the government. On a good note, the taxpayers can time to time check their e-filing portal to figure out their tax liabilities to the government and respond to their demands before the deadline (which is 30 days from the day of issuing the notice).

Notice for Re-assessment

Under section 147 of the Income Tax Act, the tax department has the right to reassess the tax from the previously filed ITR. An Assessing Officer will issue the notice and thereon collect the tax returns from the taxpayer. But this is valid only in case if the tax department finds out that there is still some income liable for tax and has escaped the levy. Moreover, the department must possess valid proofs which explain the situation.
Notice is issued by the tax governance only when it has sufficient sources to prove that the taxpayer by fraud or wishfully escaped the assessment.
The only way to prevent the situation is that you pay the taxes by utmost sincerity to avoid being considered as tax evaded.

Attention Taxpayers- Points for You to Keep in Mind Related to ITR Filing

Avoid being in a faulty condition. In the worst case if you get any notice from the tax department then revert to the notices within the time assigned to you. In case of a scrutiny, provide all the relevant details the department seeks from you.

Issued notices totally depend upon the tax logistics designed in the system. The taxpayer can ignore the notice only if he knows that the ITR filed by him is accurate and within time. Income details in ITR are the same as Form 26AS. Limit the cash withdrawal in a financial year, confined the use of credit cards to Rs. 2 Lakhs and report the sale/purchase details accurately in the ITR.

There is a series of penalties depending upon the faults you have made regarding your ITR. the reasons may be a delay in filing the ITR or not filing the ITR or not responding to the notices or any other default in ITR.

If you are looking for a demo of income tax return software for online filing and tax refund. See here SAG Infotech provides the free download of Gen IT software for income tax return filing which is available for 10 active hours on trial basis in India.

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