You have paid all your taxes. You have filed your income tax returns diligently. Even then you get an income tax notice?! Before you cry foul, let us look at the reasons that you might have got one –
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Reasons you can get an Income Tax Notice
Incorrect details in the Income Tax Return –
You should fill your income tax return document carefully entering correct details such as name, address and PAN number. If there is any mistake in any of these details, you will be served a notice.
Mismatch in Actual Income and Declared Income –
If there is a difference in the actual income you have earned and the income declared at the time of filing the returns, you can get a tax notice. You might not have done it on purpose. Since all financial transactions can be tracked and recorded, it is easy for the income tax officials to spot discrepancies. (must share any interest you have earned even if TDS was deducted, capital gains even if that’s small number, tax-free or dividend income)
You have only paid the tax but not filed your returns –
Are you sure you filed your returns? Paying taxes and filing returns are two different things. If you have only paid the tax but not filed the returns, the tax department might send you a notice. Even if your taxes are nil after availing the deductions, you need to file your returns if your income is greater than Rs. 2,50,000. If you are a senior citizen, the limit is Rs. 3,00,000 and it is Rs. 5,00,000 for super senior citizens. You have to file tax returns even for your company which has made losses during that financial year. Some people just file the return online. That is not the end of the process. You have to submit the ITRV within 120 days of uploading the returns. Some people file the returns after the due date. Delays may lead to penalties. In such cases, you can get a notice from the IT department.
Sudden changes in income or investment levels or high-value transactions –
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. High value transactions can include cash deposits greater than Rs. 10,00,000 in a year or credit card purchases worth greater than Rs. 20,00,000 per year etc. If you make too many investments in your spouse’s name or child’s name, the income earned will be considered as your income and it should be included while assessing total income to be taxed. If this income is missing from your returns, you may get a notice.
Discrepancies in TDS –
TDS can de deposited by the employer, bank where you have fixed deposits, bond issuer whose bonds you have invested in. If there is some mistakes in the TDS deducted and the income and interest that you have earned, you are likely to get a notice from the tax department. Sometimes the income in previous employment is not considered in the returns. If TDS is reflected in your Form 26AS, it can come to the notice of the department and they can question the same.
Unpaid tax on interest income –
Unknowingly, you might have excluded certain interest income that you have received but since the interest is credited to your bank account or reinvested in your assets, it is easy for the department to trace it back to you and you can get a notice for non-payment on tax.
Investigation Purpose –
The Income Tax department is always looking at widening the tax net and want to make sure all people earning income are assessed. They also want to ensure strict compliance. Therefore, they can send notices to random people. (If you were resident Indian in the last year & became NRI in Current financial year – chances of getting notice is very high)
We have shared most common reasons, please share your experience –
I will update the post based on your inputs.
If you get an income tax notice, you need not panic. You should find the reason for the notice and take the appropriate step to satisfy the notice. You can either submit the necessary documentation or refile the returns after making the necessary corrections. If you have been asked to be present in front of a tax official while filing returns, you should do so or authorise a tax expert to handle the case. He/She should have a valid power of attorney. If you think the notice is erroneous, you should respond appropriately with the necessary proof. It is important to respond to notices else the penalty and interest keep increasing.
Incorrect filing of returns is an offence. You can be charged penalties or even face imprisonment. Ignoring income tax notices takes time, money and effort in the long run. Therefore you should ensure that you file your returns correctly and respond to income tax notices if any, in the right manner.