Discover the best approach to tackle income tax notices: Should you hire a professional or handle it yourself? Get expert insights and guidance in our latest blog to navigate tax challenges effectively.

Dealing with Income Tax Notices: Hire a Professional or Respond Yourself?

Receiving an income tax notice can be a stressful experience. Taxpayers sometimes receive income tax notices, which can be unsettling, but it doesn't necessarily mean you've done something wrong. Even a minor mistake in your tax return could trigger such a notice from the tax department. The important thing is not to panic and address the situation calmly and wisely. In this blog, we'll explore whether you should handle the notice yourself or seek the assistance of a tax professional.

There are a few factors to consider when making this decision. First, you need to understand the reason for the notice. If it is a routine notice, such as a confirmation that your return was received, you may be able to handle it yourself. However, if the notice asks for more information or requests an audit or assessment, you should consider hiring a professional or platform like TaxNodes. 

Another factor to consider is your level of knowledge about income tax law. If you are unfamiliar with the tax code, you may make mistakes if you try to respond to the notice yourself. It could lead to additional penalties or interest charges.

Finally, it would be best to consider how much time and effort you will put into responding to the notice. If you are short on time or do not want to deal with the hassle, you may want to hire a professional.

Read more: Common Mistakes that attract Income Tax Notices and how to avoid them?

There are several benefits to hiring a tax professional to help you respond to an income tax notice. First, they will have the knowledge and experience to help you understand the notice and respond appropriately. Second, they can help you gather the necessary documentation and prepare your response. Third, they can represent you in an audit if required.

Of course, there are also some costs associated with hiring a tax professional. However, the cost of hiring a professional may be offset by the peace of mind that comes with knowing that a qualified professional is handling your response.

If you decide to respond to the notice yourself, there are a few things you should keep in mind. First, you need to make sure that you understand the notice and the reason for it. Second, you must gather all the necessary documentation to support your response. Third, you need to write a concise response addressing the concerns raised in the notice.

If you are unsure how to respond to the notice, contact the Income Tax Department for assistance. They will be able to provide you with more information about the notice and help you understand your options.

Whether you should hire a tax professional or respond to the notice depends on your circumstances; if you are unfamiliar with the tax code or do not have the time to deal with the notice, you should hire a platform like TaxNodes. We provide you with a one-stop solution for all your income tax queries; we will assist you from filling your ITR to responding to your IT notices. 

Here are some additional tips for responding to an income tax notice:

•	Be timely. Respond to the notice within the timeframe specified.

•	Be accurate. Make sure that your response is accurate and complete.

•	Be clear. Write a clear and concise answer that is easy to understand.

•	Be respectful. Be respectful of the Income Tax Department and its officials.

Discover the top Income Tax notice triggers and learn expert strategies to steer clear of them in our latest blog. Avoid costly mistakes with our essential tax tips.

Common Mistakes that attract Income Tax Notices and how to avoid them?

Receiving an income tax notice from the Income Tax office is a situation that most taxpayers dread. Even if you have diligently filed your tax return, there are several reasons why you might still end up with a notice. In this article, we will explore the common mistakes that often attract income tax notices and provide detailed guidance on avoiding them while complying with the Indian Income Tax Act 1961.

Scrutiny assessment is a process where the tax department carefully examines the tax returns filed by taxpayers. If the department has a reason to believe that the information provided is incorrect or incomplete, the case is selected for scrutiny assessment. The taxpayer receives a notice from the department and must take appropriate action as communicated.

The Reasons behind Selection of Cases for Scrutiny

Scrutiny assessments can be of two types: manual and compulsory. While manual selection for scrutiny is often avoidable with careful attention, compulsory selection cannot be prevented.

Let's delve into some of the common reasons for the selection of cases for scrutiny and explore ways to avoid them effectively:

Reason 1: Non-filing of Income Tax Return (ITR)

One of the primary reasons for receiving an income tax notice is the non-filing of ITR. If your gross income exceeds the exempted limit (INR 2,50,000 for individuals below the age of 60), filing an annual income tax return within the stipulated time frame is mandatory. For resident Indians who own foreign assets or have signing authority in a foreign bank account, filing a tax return is obligatory, irrespective of their income. Even if your employer has already deducted TDS from your pay, you must still file your return to avoid attracting a notice.

How to avoid: Ensure prompt payment of advance taxes and file your returns well before the due date.

Discrepancies between the TDS shown in your return and what is reported on the Traces website can raise red flags and lead to an income tax notice.

How to avoid: Request your employer or any entity deducting TDS from your income to deposit the amount with the government treasury and file TDS returns on time. Always reconcile the actual TDS deducted from your income with your Tax Credit Statement (Form 26AS) and promptly report any discrepancies.

Reason 3: Non-disclosure of Other Incomes

One of the most common mistakes is failing to report all earned incomes in the tax return. Many individuals overlook interest income from savings accounts, fixed deposits, and recurring deposits.

Cases where TDS is deducted at a lower rate than the taxpayer's applicable tax slab can attract scrutiny for non-disclosure or an attempt to minimize tax liability.

How to avoid: Request your bank to provide an interest statement for all your deposits at the year-end. Report all income from any source in your tax return, even if the amount is tax-exempt.

Note: Concealment of income can result in penalties of up to 300% of the tax payable.

Reason 4: Unnatural or High-Value Transactions

Engaging in transactions with significantly higher values than the income declared in your tax return may trigger an income tax notice. For instance, a salaried individual earning Rs. 4,00,000 but depositing more than Rs. 10,00,000 in their bank account may attract attention. All high-value transactions are reported directly to the tax department through annual information returns filed by institutions like brokers and banks.

How to avoid: Ensure you report every transaction, including losses such as those incurred in share trading, to the tax department to avoid notice.

Filing an inaccurate income tax return due to ignorance or lack of knowledge can lead to notices from the tax department. This could be caused by using the wrong ITR form, omitting mandatory information, or other errors.

How to avoid: Prepare all your documents before filing your ITR and seek assistance from a tax expert if you face any challenges in filing your return.

Read more: How to respond to an Income Tax Notice?

Receiving an income tax notice can be avoided by ensuring accurate and timely filing of income tax returns, meticulous record-keeping, and transparent reporting of all incomes and transactions. Compliance with the provisions of the Indian Income Tax Act 1961 and being proactive in rectifying any mistakes or discrepancies can help taxpayers avoid unwanted scrutiny and maintain a smooth tax journey. By staying informed and vigilant, taxpayers can navigate the complexities of the tax system and prevent potential issues that may arise from common mistakes. Remember, diligent compliance and seeking professional guidance whenever necessary is the key to avoiding income tax notices.

Unlock the secrets of Income Tax Assessment and learn how to confidently navigate Income Tax Notices with our comprehensive guide. Discover expert tips to demystify the process and protect your financial interests. Read now!

Demystifying Income Tax Assessment: How to respond to an Income Tax Notice?

Filing income tax returns (ITR) is an essential obligation for all individuals and organizations operating in India. Once you have filed your ITR, the next crucial step is to verify the details provided. The Income Tax Department (IT Department) thoroughly examines the income declarations and tax payments to ensure accuracy. If any discrepancies are found, the department may issue a demand notice. In this article, we will guide you on how to respond to an income tax demand notice in accordance with the Indian Income Tax Act 1961.

It is crucial to differentiate between an intimation and a notice from the IT Department. An intimation informs the assessee about the progress of their ITR application and usually requires no action. On the other hand, a notice demands a response from the taxpayer within a specified time frame.

Non-Disclosure of Income: If the disclosed income in the ITR is less than the actual income, the IT Department may issue a notice under section 139(9) or 143(1). This notice will require the taxpayer to explain the discrepancies and provide supporting documentation.

Delay in Filing ITR: Reminders are sent to taxpayers under section 139(1) to file returns on time. Failure to do so may result in a notice under section 142(1)(i) demanding the return filing. In such cases, the taxpayer must respond promptly and provide a valid reason for the delay.

Tax Evasion: If the department suspects tax evasion, a notice under section 143(2) may be issued, requiring the taxpayer to explain discrepancies in investments or undeclared income. The taxpayer must provide a detailed response with evidence to justify their income declarations.

Notice of Demand: When the IT Department orders the payment of tax, interest, or penalty, a notice of demand under section 156 is issued, and the taxpayer must pay the amount within the specified period. The taxpayer should respond promptly and acknowledge the demand, or in case of disagreement, provide a valid reason for their submission.

Setting off Refunds Against Tax Payable: Under section 245, the IT Department may offset any refunds against outstanding dues and notify the taxpayer accordingly. In such cases, the taxpayer must respond promptly to acknowledge the offset or provide relevant information if they disagree with the offset.

Responding to an Income Tax Demand Notice

Step 1: Log in to the Income Tax Department's e-filing website at www.incometaxindiaefiling.gov.in using your user ID and password (PAN number). Ensure you have access to all relevant documents and information related to your income and tax payments.

Step 2: Click on 'E-file' and select 'Respond to Outstanding Tax Demand.' Carefully review the details of the demand notice displayed, including the assessment year, section code, demand notification number, date of demand, outstanding demand amount, and other relevant information.

Step 3: Choose the relevant option for your response based on the nature of the demand:

If you agree with the demand, select this option, and a pop-up message will appear stating that you cannot disagree with the demand once confirmed. Click on 'Submit' to proceed.

If a refund is due, the outstanding amount and interest will be adjusted against the refund due. Otherwise, you must pay the demanded amount immediately.

If you believe the demand is partially correct, enter the correct and incorrect amounts per your understanding.

Provide the necessary details to justify your disagreement with the department's calculation. Depending on the reason for partial correctness, you may need to provide specific information such as the Challan Identification Number (CIN) for a paid demand, details of rectification or appellate orders, or stay petitions filed, among others.

Upload relevant documents and remarks to support your response.

If you disagree with the demand, provide detailed reasons for your disagreement.

Choose the appropriate reason for your disagreement from the available options.

Upload any necessary supporting documents and remarks to substantiate your stance.

Step 4: A transaction ID will be generated after submitting your response. Keep checking your e-filing account for any follow-up notices or communications from the IT Department.

Read more: What to do if you receive a notice?

Responding to an income tax demand notice is a crucial responsibility for taxpayers in India. The income tax department now uses a faceless and digitalized system, making filing responses more accessible. It is essential to accurately disclose all incomes and investments in the ITR to avoid future complications. Always respond to any notice within the specified time frame to maintain a clear tax track record and comply with the Indian Income Tax Act, 1961. By following the step-by-step guide provided in this article, taxpayers can handle income tax notices effectively and efficiently.

Unlock tax-saving opportunities for NRIs with expert tips on income tax filing. Maximize returns and ensure a smooth tax filing experience from abroad.

Filing Income Tax Returns for NRIs: A Guide | TaxNodes

Filing income tax returns is an important responsibility for all citizens, including Non-Resident Indians (NRIs). NRIs are liable to pay income tax in India if their income from sources in India exceeds the basic exemption limit of Rs 2.5 lakh. However, many NRIs are unaware of the rules and procedures for filing income tax returns in India and end up paying more tax than they should or missing the deadlines.

There are various processes involved in submitting income tax returns for NRIs in India. These involve getting a Permanent Account Number (PAN) card, signing up on the Income Tax Department website, compiling the required paperwork, figuring out your taxable income, selecting a tax filing portal, completing the proper ITR form, and then verifying and submitting it. 

While not focusing on the obvious perquisites, such as getting PAN card or compiling required paperwork, this write-up will particularly explain the ins and outs of filing income tax returns for NRIs with the intent to help them avoid common mistakes and penalties.

Read more: Crypto Tax India: The Ultimate Guide

As stated in the Income Tax Act of 1961 (IT Act), a person is an NRI if they are an Indian citizen or someone of Indian ancestry but are NOT residents of India. Hence, the first step for us to consider would be finding residency status for tax purpose. 

To determine the residential status, the number of days a person has resided in India during a financial year (FY) and the four FYs before it is the determining factor. 

If a person meets one of the following criteria, they are considered to be residents of India: 

They have spent at least 182 days in India within a FY; or 

They have spent at least 60 days in India during a FY and at least 365 days throughout the four prior FYs.

The second criteria is eased to 182 days instead of 60 days for NRIs who are Indian nationals or people of Indian ancestry. NRIs who go to India for fewer than 182 days in a FY are therefore not considered residents of India. Any foreign income will not be taxed in India for NRIs.

The next step for NRIs would be to determine their taxable income. A taxable income includes income from salary, house property, capital gains, business or profession, and other sources that has been received or accrued in India. Additionally, even NRIs can claim certain deductions and exemptions from their taxable income. For example most of the deductions under Section 80 (such as under 80C, 80D, 80G, etc.) of the Act are also available to NRIs. 

The next step would be filing the Income Tax Returns (ITR). Using the Income Tax Department's e-filing site (https://www.incometaxindiaefiling.gov.in), NRIs may simply submit their returns online. Under Section 139 if the Act, NRIs must submit their returns by July 31 of the assessment year (AY), which is the year after the FY. For the FY 2022–23, for instance, the AY is 2023–24, and the deadline is July 31, 2023. 

Depending on their sources of income, NRIs can choose from a variety of ITR forms. For instance, NRIs must use the Return Form ITR-1 to submit their return if their total income is less than Rs 50 lakh and comes from salary, one house property, and other sources (except lottery winnings and racing horses). On the other hand, an NRIs must use the Form ITR-3 if they have income that falls under the heading Profits and Gains from Business or Profession.

The final step after furnishing the tax return will be verifying the tax returns as the return will be regarded as invalid if it is not verified within the allotted period. The return can be verified using any viable method available. For instance, verification approach such as e-Verification is often preferred by NRIs as the same is known to be a swift and convenient means for verification.

It is critical for NRIs to understand how their residency status impacts their tax obligations. For instance, money earned even outside of India becomes taxable if an NRI's residential status changes from NRI or RNOR (Resident but Not-Ordinary Resident) to ROR (Resident and Ordinarily Resident).

In conclusion, NRIs in India have a significant obligation to file income tax returns. NRIs must make sure they pay their taxes on time and correctly by learning the laws and norms governing NRI taxation and according to the actions indicated above.

Further, if you are an NRI, you should carefully analyse your filing obligations and utilise any relevant exemptions and deductions. The guidelines for a tax audit should also be known to you. Understanding your tax responsibilities will help you stay in compliance with the law and prevent penalties.

We at TaxNodes can help ensure a smooth and hassle-free experience while filing income tax returns.

Filing Income Tax Returns for NRIs: A Guide

Maximize tax savings with our guide on utilizing the Hindu Undivided Family (HUF) structure. Discover effective strategies for wealth preservation.

Hindu Undivided Family (HUF) Tax Savings - Guide | TaxNodes

The Indian Income Tax Act offers various avenues for taxpayers to optimize their tax liabilities in a systematic and lawful manner. One such avenue that often remains underutilized is the creation of a Hindu Undivided Family (HUF). A HUF can be formed by a married couple or members of a joint family, and it can also be formed by Jains, Sikhs, and Buddhists despite being governed by the Hindu law board.

A HUF is treated as a separate entity for income tax purposes and is taxed separately, enabling individuals to segregate their tax obligations from those of their family members. The income tax slab for HUF is the same as that for an individual, with an exemption limit of Rs 2.5 lakh, and it qualifies for all the tax benefits under sections 80C, 80D, 80G, and more under the Income Tax Act 1961. Additionally, HUFs enjoy exemptions under Sections 54 and 54F concerning capital gains. Creating a HUF involves fulfilling certain legal and financial requirements. To establish a HUF, a deed must be executed, a HUF PAN should be obtained, and a bank account in the name of the HUF must be opened. The process incurs a modest cost. Capital must be infused to create the HUF corpus, which can be achieved through gifts from relatives or assets received through wills or inheritance, as such contributions enjoy tax exemption. However, it is essential to avoid transferring personal assets and funds to the HUF account to prevent the income generated from being clubbed with personal income under Section 64(2).

Read more: How to File Income Tax Returns Online

The Karta( a person who usually manage all the affair of the family), or the senior most male member of the family, manages the HUF corpus. All family members can contribute their income to this common pool, which the Karta handles or authorizes for handling. Transactions from the HUF account require Karta's signature. While the HUF account shares similarities with an individual savings account, it offers various tax benefits on income pooled from family members.

SOME DISTINCTIVE FEATURES OF THE HUF ACCOUNT INCLUDE

Each family member can deposit their income in the common corpus.

The Karta has sole authority over HUF account activities, even though all family members participate.

Tax benefits are available on deposits under various sections.

The corpus can only be divided with the agreement of every coparcener of the family.

Opening a HUF account requires specific documents, including a unique PAN card for the HUF, along with the PAN of the Karta. A declaration form is provided, which each member must sign to affirm that they are the only members of the HUF, and the Karta has sole authority over the HUF account. Additional requirements may vary depending on the bank where the HUF account is opened.

Tax rebates and deductions can be availed under Section 80C for HUF accounts.

Gifts up to Rs 50,000 collected by the HUF are tax-free.

The corpus can be invested in tax-free financial instruments.

Read more: Tax-Saving Investment Options Beyond 80C

However, there are some disadvantages to consider:

Insecurity among members may lead to an empty HUF corpus, rendering the account non-functional.

Partitioning the HUF deposit can be a tedious process if any member wishes to proceed with it.

Despite its limitations, HUFs offer valuable tax-saving opportunities. For salaried individuals, while salary income cannot be diverted to the HUF, additional income earned through other sources can be claimed in the name of the HUF, thus reducing taxable income.

Here are some effective ways to optimize tax savings with a HUF:

Rental Income from Property: Receive rental income from property on behalf of the HUF rather than an individual account.

Business Income: Generate profits from the family business under the name of the HUF to benefit from tax exemptions and deductions.

Remuneration to Karta and Members: Provide remuneration to Karta and other family members, as it qualifies as an allowable deduction from HUF income.

Loan to HUF Members: If the HUF's business, capital, or investments are expanding, consider providing loans to individual members, either with or without interest.

Family Settlement or Arrangement: Employ a family settlement to resolve property disputes among family members, thereby reducing tax incidence or potentially eliminating it.

While utilizing HUFs for tax optimization, it is crucial to adhere to certain guidelines:

File the HUF's income tax return annually, considering all income received under its name, but be aware of the clubbing provision that may hold the Karta liable for any income diverted to the HUF with the intention of evading tax.

Assets contributed to the HUF are considered common assets, and the previous owner must renounce ownership in favor of the HUF.

New additions to the family through birth or marriage will add members to the HUF, which may complicate its management and record-keeping.

The process of shutting down the HUF can be challenging and requires the unanimous agreement of all HUF members.

Read more: Tips to Avoid Getting a Tax Notice

Forming a HUF is a legitimate way to optimize tax savings and include family members in the process. By leveraging the tax benefits offered under the Income Tax Act, individuals can strategically manage their income and investments through HUF accounts, leading to reduced tax liabilities and increased financial security for the family. However, it is essential to understand the legal and financial implications associated with HUFs and to seek professional advice when needed to maximize the benefits while adhering to the relevant tax laws.

We at TaxNodes can help ensure a smooth and hassle-free experience while filing ITR.

Hindu Undivided Family (HUF) Tax Savings - Guide

Discover the ins and outs of Income Tax Return Notices and gain valuable insights on how to handle them effectively. Our comprehensive blog guides you through understanding the complexities of tax notices, empowering you to take informed actions if you ever receive one. Stay one step ahead in your tax journey with expert advice and practical tips for addressing Income Tax Return Notices like a pro.

Understanding Income Tax Return Notices: What to do if you receive one?

As an Indian taxpayer, filing your income tax return (ITR) is a crucial responsibility. It helps the government assess your tax liability accurately and ensures the smooth functioning of the country's economy. However, sometimes you might receive an Income Tax Return Notice, which can be daunting and confusing. In this blog, we will help you understand what these notices are, why you may receive one, and, most importantly, what steps to take if you find one in your mailbox.

An Income Tax Return Notice is a formal communication from the Income Tax Department to taxpayers regarding their ITR. These notices are usually sent when the department detects discrepancies or inconsistencies in the tax return filed by the taxpayer. Responding promptly and appropriately to these notices is essential to avoid any legal consequences.

Reasons for Receiving an Income Tax Return Notice

The Income Tax Department cross-verifies the data you provided in your return with the information available to them through various sources, such as Form 26AS, TDS details, and bank transactions. You may receive a notice if there are discrepancies in the reported income.

Failure to report all sources of income, such as interest income, rental income, or capital gains, can trigger a notice.

A notice may be issued if the TDS (Tax Deducted at Source) claimed in your return does not match the TDS records available with the department.

Engaging in significant financial transactions, like buying property or investing substantial amounts, might attract the department's attention.

If you are liable to file an ITR but haven't done so, you may receive a notice urging you to file your return.

Steps to Take if You Receive an Income Tax Return Notice

Upon receiving a notice, take a deep breath, and read the notice thoroughly. Ensure you understand the reason for the notice and the specific sections of the Income Tax Act mentioned. If you are unsure, seek assistance from a tax professional or a reliable tax advisor such as TaxNodes.

Notices come with a deadline for response. It is crucial to adhere to this timeline. Failing to respond within the given timeframe can lead to penalties and further complications.

Dealing with tax matters can be complex, and it's okay if you need help. Seeking guidance from a qualified tax professional can ensure that you provide accurate and appropriate information in your response.

Collect all the necessary documents, such as Form 16, Form 26AS, bank statements, and investment proofs, to support your response. Proper documentation can help you demonstrate the accuracy of your tax return.

Prepare a well-structured response addressing the specific issues raised in the notice. Be honest and transparent in your explanation, providing any supporting evidence that validates your claims.

6. Submit a Response via the Appropriate Channel

Follow the guidelines mentioned in the notice regarding the mode of response. Some notices can be replied to online, while others may require physical submission at the designated tax office.

Receiving an Income Tax notice might seem intimidating, but you can handle it smoothly with the right approach. Review the notice carefully, seek professional assistance, respond promptly, and provide accurate documentation to support your claim. As responsible taxpayers, cooperate with the Income Tax Department whenever necessary. Be proactive and diligent in resolving discrepancies and build a trustworthy relationship with the tax authorities.

Learn how to efficiently e-file your income tax return with this comprehensive guide. Discover step-by-step instructions and useful tips to simplify the process.

Step-by-Step E-Filing: Comprehensive Tax Guide

A Comprehensive Guide to E-Filing Income Tax Return

Filing income tax returns is an essential responsibility for taxpayers. It allows individuals to declare their income, expenses, deductions, investments, and taxes. In accordance with the Income Tax Act of 1961, taxpayers are required to file an income tax return under various scenarios. In this blog, we will explain all types of ITR forms that need to be filled for Income Tax Return; we will guide you through the process of e-filing your income tax return, providing step-by-step instructions to ensure a smooth and hassle-free experience.

The Income Tax Return (ITR) forms in India are categorised into different types: ITR 1 to 6. These forms are designed to cater to the varying needs of different types of taxpayers based on their income sources and nature of income. Let's take a brief look at each of these forms:

ITR 1 (Sahaj): This form is meant for individuals with a salary, pension, or income from one house property and with an income of up to Rs. 50 lakhs. It is a simplified form for salaried individuals and does not require the disclosure of detailed financial statements.

ITR 2: Individuals and Hindu Undivided Families (HUFs) who do not have income from business or profession are required to use ITR 2. This form applies to individuals with income from more than one house property, capital gains, and foreign income.

ITR 3: This form is applicable for individuals and HUFs who have income from business or profession. It is specifically designed for taxpayers who are partners in a partnership firm or have proprietary businesses.

ITR 4 (Sugam): Individuals, HUFs, and firms (other than LLPs) having income from business or profession can use ITR 4. It is a simplified form for small taxpayers and professionals, allowing them to report their income presumptively.

ITR 5: This form is for partnerships, LLPs (Limited Liability Partnerships), Association of Persons (AOPs), and Body of Individuals (BOIs) who are not required to file their returns under any other ITR form.

ITR 6: Companies other than those claiming exemptions under section 11 (income from property held for charitable or religious purposes) should file their returns using ITR 6. It is applicable for companies that are not eligible for filing returns in ITR 7.

ITR 7 - It  is an income tax return form  for individuals and companies with specific income sources, such as charitable or religious trusts, political parties, and research associations. It requires detailed financial information and is filed annually.

Each ITR form has specific sections and schedules that taxpayers need to fill out based on their income sources and nature of income. It is essential to carefully select the appropriate ITR form that matches the individual's income profile to ensure accurate reporting and compliance with tax regulations.

The new schedule for reporting income from virtual digital assets (VDAs) such as cryptocurrency has been introduced in the income tax return (ITR) forms for individuals for Assessment Year 2023-24 (Financial Year 2022-23). The Central Board of Direct Taxes (CBDT) notified ITR forms 1-6, including ITR 1 to 6 mentioned earlier, along with ITR-V (verification form) and ITR acknowledgement form for AY 2023-24 through a notification on February 10, 2023.

Individuals filing their ITRs using any of the six forms will now have a separate schedule to report their income from virtual digital assets. The new schedule requires taxpayers to provide details such as the date of acquisition and the date of transfer of the virtual digital assets. They also need to mention the head under which the income will be taxed, specifically for capital gains. Additionally, the acquisition cost must be mentioned in case the assets were acquired as a gift or from a previous owner. The amount should be entered if any tax has been paid on the assets under section 56(2). In case of a loss, taxpayers should enter nil for income from the transfer of virtual digital assets.

It is essential for individuals who earn income or gains from VDAs, including cryptocurrency, to be prepared with these specific details while filing their ITR for Assessment Year 2023-24 or Financial Year 2022-23. They must carefully select the appropriate ITR form that matches their income profile and utilise the new schedule to report their income from virtual digital assets accurately.

By introducing this new schedule, the Income Tax Department aims to enhance tax compliance and ensure transparency in reporting income from virtual digital assets. Taxpayers are advised to consult tax professionals or refer to the official guidance provided by the department to ensure compliance with the new requirements while filing their ITRs.

The first step in filing your income tax return is accurately calculating your income. Consider all sources of income, such as salary, freelance earnings, and interest income. Additionally, be sure to include any deductions you are eligible for, such as investments under section 80C. Furthermore, consider any tax credits for TDS, TCS, or advance tax payments made.

Step 2: Tax Deducted at Source (TDS) Certificates and Form 26AS

Summarise the total TDS amount from the TDS certificates you received throughout the financial year. To assist you in this process, refer to Form 26AS, which comprehensively summarises the TDS and taxes paid during the year.

Before filing your returns, determine the appropriate Income Tax Return (ITR) form you need to fill out. You can file your returns either online or offline.

Step 4: Download ITR Utility from Income Tax Portal

Visit the official website of the Income Tax Department at www.incometax.gov.in and select the 'Downloads' option from the top menu bar. Choose the relevant assessment year and download the offline utility software, such as Microsoft Excel, Java, or JSON, based on your preference. Note that the income tax department discontinued Excel and Java utilities from AY 2020-21.

Step 5: Fill in Your Details in the Downloaded File

After downloading the offline utility, fill in all the necessary details of your income, expenses, and deductions. Use the utility to calculate the tax or refund receivable based on the provided information. Additionally, fill in the details of the income tax challan in the downloaded form.

You will find several buttons on the right-hand side within the downloaded form. Click the 'Validate' button to ensure all the required information has been correctly filled in and validated.

Once the information has been successfully validated, click the 'Generate XML' button on the file's right-hand side. This action will convert the file into XML format, which is necessary for uploading it onto the income tax portal.

Step 8: Upload the XML File on the Income Tax Portal

Login to the income tax e-filing portal and select the 'e-File' tab. From the options provided, choose 'Income Tax Return.' Enter the required details, including your PAN, assessment year, ITR form number, and submission mode. Make sure to select 'Upload XML' from the drop-down menu for the 'Submission Mode' field.

Next, attach the XML file from your computer and click the 'Submit' button. Finally, choose one of the available verification modes, which include Aadhaar OTP, electronic verification code (EVC), or sending a manually signed copy of ITR-V to CPC, Bengaluru.

E-filing income tax returns is a crucial responsibility for taxpayers, and it can be simplified by following a systematic process. Understanding the different types of ITR forms and selecting the appropriate one based on individual income sources is essential to ensure accurate reporting and compliance with tax regulations. Introducing a new schedule for reporting income from virtual digital assets, including cryptocurrency, further emphasises the need for taxpayers to be well-prepared with specific details while filing their ITRs when they also earn from cryptocurrency. By adhering to the step-by-step procedure for e-filing, taxpayers can effectively calculate their income, choose the right form, and submit their returns electronically, contributing to enhanced tax compliance and transparency. We at TaxNodes can help ensure a smooth and hassle-free experience while filing income tax returns.

Discover the various use cases of income tax returns to optimize your benefits while avoiding costly mistakes. Learn how to maximize deductions and credits for a stress-free tax season.

Mastering Income Tax Returns: Real-Life Use Cases

As the tax season is upon us, we are often plagued with questions as to the importance of filing one's income tax returns (ITR). While it is undoubtedly a tiresome process involving the computation of taxes, the filing of applicable forms, and finally, filing the income tax return with the relevant authority, it is essential for more reasons than one. In this article, we shall delve into the various uses of filing ITRs. 

It is to be noted ITR is a tax return serving as a self-declaration by a taxpayer wherein they provide details pertaining to their income, assets, liabilities and losses to compute the taxes applicable to them. Under the Income Tax Act, 1961 (IT Act), every person, whether real or legal, is mandated to file their ITRs if they fall under the purview as specified under the provisions of the IT Act. In particular, the following are considered to fall under the purview of the IT Act: 

Individuals with their annual gross income level above the specified limits (as revised from time to time);

An individual, being a resident and ordinary resident in India, if he or she: 
holds (as a beneficial owner or otherwise) any asset, including any financial interest in any entity located outside India, or 
has a signing authority in any account located outside India, or 
is a beneficiary of any asset, including any financial interest in any entity located outside India; 

Any person who has deposited an aggregate amount of more than INR 1 crore in one or more current bank accounts; 

Any person who has incurred an aggregate expenditure of more than INR 2,00,000 on foreign travel for self or any other person; 

Any person who has incurred an expenditure aggregate of more than INR 1,00,000 towards electricity consumption. 

In light of the above, it is evident that the IT Act mandates the filing of ITR for the aforementioned taxpayers. Therefore, the taxpayers, upon such filing, can avail the following benefits: 

1. Access to Loan And Credit Facilities Offered by Banking/Financial Institutes

Since the regular filing of ITR proves steady income, it acts as an indication of one's financial feasibility while granting credit. Therefore, financial institutions seek one's ITR filing records in order to ensure that the person they are disbursing a credit amount to has the ability to pay it back. Furthermore, it is to be noted that ITR filings play a vital role in determining one's credit history vide their Credit Information Bureau Limited score (CIBIL).  

2. Visa Processing For Travel, Education or Work Overseas

On account of being proof of a person's steady income, ITR filings are often required to be submitted while applying for visas to visit foreign nations whether for work, travel or educational purposes. 

While salaried individuals have tax certificates and salary slips to prove their income, for self-employed or professionals, ITR filings can be used to provide proof of their income, wherever necessary. 

ITR filings often mandate the filing of a tax amount that may exceed one's tax liability; therefore, to claim the excessively paid tax at a later date, it is essential to file ITRs and present the same before the applicable authority to claim refunds due. 

In case a person engages in any high-value or foreign transactions, especially in case of the sale or transfer of assets, the individual is required to furnish a tax clearance certificate under Section 281 of the IT Act. In order to claim this certificate, filing one's ITR is mandated under the IT Act. 

6. Eligibility for Tenders Offered by Government

In certain instances, in order to file an application for a tender published by the government, the government mandates the filing of one's previous years' ITRs in order to be eligible to apply for such tenders. 

ITR filings offer a comprehensive view of one's income earned throughout the years and its sources. Such details can be highly useful when one engages in high-value transactions, especially transactions related to property purchases, investments, etc. 

In conclusion, the process of filing income tax returns (ITRs) carries significant benefits for taxpayers. By complying with this legal requirement, individuals and entities gain access to loan and credit facilities from banking institutions due to the evidence of steady income that ITR filings provide. Moreover, ITRs play a crucial role in visa processing for overseas travel, study, or work, as they serve as proof of financial stability. Additionally, ITR filings offer proof of income and address for self-employed individuals, facilitate tax refund claims, enable the acquisition of tax clearance certificates, provide eligibility for government tenders, and further provide comprehensive records of accumulated income for high-value transactions.

Attention Salaried Individuals: Decode the 6 Common Income Tax Notices! Stay One Step Ahead with Essential Tax Knowledge. Don't Risk Penalties. Read Now!

6 Common Income Tax Notices: A Complete Guide for Salaried Individuals

Receiving an income tax notice can be alarming for any salaried individual. However, it is crucial to comprehend that these notices are typically issued to rectify errors or collect additional information. This blog aims to explain six commonly encountered income tax notices served to salaried individuals, shedding light on their implications. When confronted with an income tax notice, individuals often experience apprehension and uncertainty. It is essential to approach the situation with a calm and informed mindset. These notices serve various purposes, such as verifying discrepancies in income reported, seeking clarification on specific transactions, or conducting audits for a thorough examination.

By understanding the types of income tax notices and their underlying implications, individuals can better navigate through the process, ensuring compliance with tax regulations and minimising potential penalties. Knowledge of these notices enables individuals to promptly address the issues, provide accurate information, and cooperate with the tax authorities, resolving the matter efficiently. Throughout this blog, I will explain the most common notices in detail, outlining their specific characteristics, potential reasons for issuance, and the steps individuals should take to respond effectively.

Under Section 143(1), an intimation is sent by the Income Tax Department to inform taxpayers about any mathematical errors or necessary changes in their tax returns. This notice does not require any further action and may pertain to issues such as eligibility for tax refunds or outstanding tax or interest amounts. The computer system typically generates it in response to erroneous tax claims or mathematical discrepancies.

2. Notice Under Section 142(1) to Inquire Before Assessment:

The assessing officer sends a notice under Section 142(1) when additional documents or information is required to assess the taxpayer's returns. It can also be issued if the return still needs to be filed. Failure to respond to this notice can lead to penalties or imprisonment. This notice aims to gather more information about the taxpayer before making a final assessment.

3. Section 139(9): Defective Income Tax Return:

If the Assessing Officer determines that there is a defect in the income tax return filed by the taxpayer, a notice under Section 139(9) is issued. The notice specifies the error and provides an opportunity to rectify it within 15 days. Failure to respond within the stipulated time can result in the rejection of the return. Common mistakes include incorrect or incomplete details in the return. Taxpayers can either agree or disagree with the assessment made by the Assessing Officer and provide their reasons for any discrepancies.

A notice under Section 143(2) informs the taxpayer that their tax return has been selected for examination. The purpose of this notice is to scrutinise the return for potential underpayment of taxes, excessive loss claims, or understatement of income. Taxpayers must respond to the questionnaire provided along with the necessary documentation within the specified time frame.

ITR Filing