An Income Tax notice is basically a written letter from the Income Tax department of India to a taxpayer informing them about issues with their tax account.
The notice can be sent for multiple reasons, like
- requesting certain information about the taxpayer, or
- if the person has failed to file an income tax return, or
- calculation errors, or
- if you fail to report your income accurately.
Every year the Income Tax Department identifies millions of residents who haven’t filed their tax returns. In most cases, most people don’t even know they have evaded tax or filed wrong numbers till they get a notice.
Reasons for which you can get an income tax notice
As a responsible tax-paying citizen of India, you try your best to follow the rules and regulations of the land and file your income tax return diligently. Even so, the Income Tax department might issue an Income Tax notice for several reasons.
1. If you have only paid the taxes but have not filed the returns
If you are a first-time taxpayer, then it is likely that you might not know the difference between filing returns and paying taxes.
So, if you have only paid your taxes but have not filed the returns, the Income Tax department can send you a notice. You must file tax returns even if your company has made losses in that financial year.
Most people usually file their returns online, but there is more to the process. You have to submit the ITR V within 120 days of uploading the returns. But if you delay the process, you may be penalized, and in such a scenario, you will get a notice from the Income Tax department.
2. If you submit inaccurate information on the assets you own
The income tax department has taken strict actions to restrict black money as much as possible.
As a result, you may receive a notification where you must disclose your annual income and asset information that you own both in India and outside.
You must be extremely careful while entering your personal information, like your name, address, and PAN card details, on your income tax return document. If there is any discrepancy, you will receive a notice.
3. Inconsistency in TDS
TDS is automatically deposited by your employer or the bank where you have fixed deposits. But if there are any mistakes with the TDS calculation and the income and interest you are earning, then it is highly likely that you will get a notice from the Tax department.
Also, if TDS information is available on your form 26AS, you can receive a notice from the department.
4. For Investigation and Evaluation
Every year, more and more people are getting employed, so the Income Tax department has to ensure that everyone’s income is assessed correctly. Therefore, they can send random notifications to people to investigate their income.
Also, if you have recently become an NRI in the current financial year, there is a high probability that you will be noticed, and you might get an income tax notice.
5. Prior tax evasion
According to the Income Tax Act, the Internal Revenue Service can re-evaluate your previously filed tax returns. So, under section 147 of the Income Tax Act, the IT department can issue a notice to you. Then, an Assessing Officer from the IT Department can select random tax returns for reassessment.
You will only receive the notice for reassessment if an income tax officer has reasons to believe that a certain amount of income accountable to tax has been overlooked.
6. In case you delay in filing IT Returns
For every financial year, you must file an ITR before the deadline, which is issued by the Government of India. In certain cases, the government may also extend the deadline.
But if you have missed the deadline or are nearing the last date for filing income tax returns, you will receive a reminder from the IT department.
A notice may also be issued under Section 142(1)(i) of the Income Tax Act, after which you must file the income tax return.
7. Sudden Surge in income or high-value transactions
If there is a sudden drop in your annual income or your annual income has skyrocketed, you will immediately come under the scrutiny of the IT department.
Suppose you have recently purchased an expensive real estate property or there are numerous high-value transactions in your bank account, then the IT department might send you a notice.
High-value transactions include cash deposits greater than ten lacs a year or credit card purchases of more than INR 20 lacs. Additionally, suppose you make too many investments, even in your child’s or spouse’s name. In that case, the revenue earned will be considered your income and, therefore, will be considered while calculating the total income that has to be taxed.
Getting an income tax notice is nothing to panic about. First, you must find out the exact reason why you got the notice, and then you can take the appropriate steps.
In most cases, the reason for the notice will be mentioned in the letter, and all you have to do is take the necessary steps, either to file the returns or make necessary corrections. You can always contact an authorized tax expert if you think the notice is incorrect.