A written notice from the Income Tax Department informing a taxpayer of an issue with his tax account is known as an income tax notice. A notice of income tax is issued by the Income Tax Department for a variety of reasons and in accordance with a number of provisions. There are Variety of reasons for receiving an Income Tax Notice, including failure to file their tax return on time, filing it incorrectly, claiming an incorrect tax refund, and many more. The tax department issues the income tax notice in accordance with Sections 143(1), 142(1), 139(1), 143(2), Section 156, Section 245 and Section 148.
Let’s look more closely at these scenarios and brainstorm ways to avoid them. In this blog post, we’ve listed 9 Common Reasons for Receiving an Income Tax Notice and provided preventative measures.
Reasons for Receiving an Income Tax Notice
TDS Mismatch
Tax Deducted at Source (TDS) is a mechanism where certain payments are subject to deduction of tax by the payer. Your TDS should match the TDS indicated on Forms 26AS and 16 or 16A as of the time you submitted your ITR. A difference will result in the issuance of a notification under Section 143 (1). Taxpayers are required to provide accurate information regarding their TDS claims while filing their tax returns.
Income Mismatch
One common reason for receiving an income tax notice is discrepancies in income reporting. The Income Tax Department closely scrutinizes the income details furnished by taxpayers in their tax returns. If any inconsistencies or discrepancies are detected, such as underreporting or overreporting of income, the department may issue a notice to seek clarification and rectification.
Non-Compliance with Tax Laws
Failure to comply with tax laws, such as not filing tax returns, delaying tax payments, or indulging in tax evasion, can lead to income tax notices. The department actively identifies non-compliant taxpayers and takes appropriate action to enforce tax laws and promote a fair and transparent tax system.
Variation in tax returns
Taxpayers sometimes unintentionally omit to include their interest, rent, dividends, or other incomes in their calculations, or they mistakenly claim deductions under the wrong sections of their tax returns. These situations will result in discrepancies between their tax returns and the amount they are actually required to pay, which will result in an income tax notice.
Differences between your claimed income and what has been disclosed
This one should be evident. The income tax Department is always on the watch for persons who are attempting to avoid paying their taxes. You may receive an income tax notice if the IT authorities believe that you have not revealed all of your revenue from various sources.
Random Scrutiny
If you’re unlucky, you might get the warning since the IT department chooses the files for scrutinizing IT returns at random each year. You can receive a notice under Section 143 (2). Among other things, scrutiny may be sparked by disparities or inaccurate reporting. You shouldn’t be concerned if you diligently filed your taxes and had everything in order.
Late filing or non-filing of returns
Each assessment year’s deadline must be met in order to file your tax return. If the ITR filing deadline is approaching and you haven’t yet, you’ll get a reminder to do so. Notice may be given in accordance with Section 142(1)(i) of the Income Tax Act, which requires that you furnish the return. If you have only paid the tax and not filed any returns, the tax department may send you an ITR notice.
Even if your company had a loss for the fiscal year, you still need to file tax returns. Some people just fill out their returns online. At that point, the process is still ongoing. You have 120 days to upload the returns and submit the ITR. Occasionally, tax returns are submitted after the deadline. Delays may result in penalties.
Not disclosing high-value transactions
To combat black money and identify all unreported income, the Income Tax Department requires taxpayers to report all high-value transactions. If you don’t report these transactions, an IT notice will be issued. Cash deposits or withdrawals over Rs. 10 lacs, international currency transactions over Rs. 10 lacs, and the purchase of mutual funds, bonds, or debentures over Rs. 10 lacs are a few examples of high-value transactions.
Excessive deductions claimed
The tax authorities may send a notice for further investigation if you make deductions or exemptions that appear excessive or irrational in comparison to your income.
Conclusion
Receiving an income tax notice can be a cause for concern, but it is crucial to understand that the purpose of these notices is to ensure tax compliance and maintain a fair taxation system. By providing accurate and complete information in your tax returns, disclosing all financial assets, and complying with tax laws, you can minimize the chances of receiving such notices.
If you have received an income tax notice, it is advisable to consult a tax professional or a chartered accountant who can guide you through the process and help you respond appropriately.
