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What is an Income tax Notice & How to avoid it?

Fri Apr 07 2023

Income tax is an essential part of our Indian financial structure, and irrespective of whether one is salaried or self-employed, one needs to pay taxes to the government. The last thing anyone would like is a notice from the Income tax department. Receiving a statement only sometimes means you have done something horrible; it could also be because of an error in your income tax return form.

Receiving a notice is not a good feeling, and responding or taking care of it is paramount. In this article, you will learn about the different income tax notices you can get in India and how to deal with them.

What is an Income Tax Notice?

After you complete and file the income tax returns, the income tax department reviews your form. Through that form, they determine whether you have disclosed the correct information. If they feel the data needs to be corrected or completed, they take ITR. You will be informed about the same through an income notice and given instructions on how to proceed.

The income tax scrutiny assessments are of two types:

  1. Manual - Manual scrutiny usually depends on case to case basis and can be avoided by the taxpayer.
  2. Compulsory - It is not based on selection and can't be prevented.

Different Reasons to Get Income Tax Notices

Here are some reasons why you may find yourself in a situation where you may receive an income tax notice from the income tax department. There are also some suggestions on how to avoid receiving those notices.

Non-filing of ITR

You must file the income tax return within the specified time limits if you have a gross income above the exempted limit. Additionally, suppose you are an Indian resident and own a foreign asset or a signing authority in a foreign bank. 

In that case, you must file the ITR irrespective of your income. Sometimes people feel that if they are salaried and their employer deducts taxes, they are not supposed to file for ITR and realize it only after receiving the notice. 

Suggestion: You should pay all your taxes in advance or on time and file for your income tax return within the set limits to avoid receiving the notice.

Error in Taxes

Your TDS amount and the amount reflected on the traces website might differ. The income tax office may issue you a notification in such circumstances. 

Suggestion: You can request the person deducting taxes on your income to deposit the amount with the government and file the TDS return on time. Moreover, always reconcile the amount with form 26AS before filing it in the ITR form.

Other Incomes not disclosed

In your ITR, you must disclose every income earned from rent, salaries, business, freelancing, interest on bank accounts, house rents, etc. In case you missed it, you can receive a notification. Moreover, there are instances where your bank deducts lower TDS, but you fall in a higher bracket. The income tax department can also mail you a notice.

Suggestion: Take the interest statement from your bank at the year's end and report income from all sources with the correct amount in your ITR.

Unexpected High-Value Transactions

In a case where your total income is less but your transactional deposits in the bank are higher can attract income tax officers. For example, you earn Rs. 5,00,000 annually, and your bank deposits show Rs. 12,00,000. Such cases are always on the higher side of receiving a scrutiny notice from the income tax department.

Suggestion: Always report every possible transaction. It could be a loss in the business resulting in lower annual income; if everything is reported on time, your case will not be scrutinized.

Defect in ITR

If you missed entering any information or the wrong information due to lack of knowledge, the income tax department can issue you notice under section 139(9) and may ask you to file the revised ITR.

Suggestion: You should take the help of an expert or someone who has been doing it for years, especially if you are filing for the first time.

Income tax returns are essential for people to file as these returns can be of help for many other things. Moreover, it is necessary to keep all your documents handy before filing, and doing so will prevent mistakes and decrease the possibility of receiving notice.

byKiruthika AS

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