Understand Income Tax Notices

Identifying the type of Notice Taxpayer has Received

Before responding to any Income Tax notice, you need to make sure that it is a genuine notice and it is addressed to you. You can do that by checking the basic details as shown in a sample notice below:

You need to check:

• Your name and address
• Your PAN number
• Assessment year, type return, ITR type
• Name and designation of issuing officer
• Communication reference number

Once you have verified the above details. Understand the intent of Income Tax Notice and requirements stated by the Department. Let’s take a look at the scenarios in which the income tax department may issue Notice.

Income Tax Notice Plan for Individuals

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Income Tax Notice Plan for Individuals

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Defective Return

In case of any defects in the Income Tax Return, Assessing Office can issue notice u/s 139(9). You need to file a return within 15 days of issue of notice in this case.

Here are some of the instances when a return can be considered a defective return:

• Any required details are not provided in the annexures, statements and columns of the income tax return.
• Any tax dues are not paid before filing the income tax return.
• Assessee is required to maintain books of accounts but he/she has filed the return without providing details of the balance sheet and profit and loss account.
• Details of auditor and audit report are not provided in case of audit applicability.

Probable resolution

In case of a notice of defective return u/s 139(9), the notice will contain ‘Annexure-A’. which will contain error description & probable resolution. Here’s an example:

Time limit

The assessee has to rectify the defect prescribed in the notice within 15 days from the date of the notice. The Assessing officer may condone the delay and treat the return as a valid return. Provided a return is filed before completion of an assessment.

Scrutiny Assessment

Assessing officer (AO) may issue a notice for scrutiny assessment u/s 143(2) to confirm any of the following:

• A taxpayer has not understated the income; or
• Has not claimed excessive loss; or
• Has not underpaid the tax in any manner

The AO will issue a notice requiring the taxpayer to attend his office or to produce any evidence, supporting documents or information in support of his return.

Probable resolution

The taxpayer or his representative has to appear before the assessing officer. Present his arguments, supporting documents and information on the matters/issues required by the officer.

Time limit

Notice issued by AO u/s 143(2) will contain date and time on which the taxpayer needs to appear in his office. The taxpayer may ask for an extension in case of unavoidable circumstances. Notice u/s 143(2) can be issued within 6 months from the end of the financial year in which return is is filed.

Tax Credit Mismatch

When TDS amount or self-assessment tax/advance tax details entered in return do not match with your Form-26AS then you will receive an intimation u/s 143(1) with a tax credit mismatch.

The notice will contain amounts entered by you and the amount calculated by the income tax department as shown below:

In case of any mismatch resulting in “TAX PAYABLE”. You will have to verify the details and take a proper course of action to correct any errors.

Probable resolution

It is possible that your employer/deductor has made any mistakes while filing TDS return. As a result, the amount which you have claimed and the amount in your Form-26AS will vary. You have to ask your employer/deductor to revise the TDS return. So that you can claim credit for TDS which was deducted from your income.

Once the return is revised and correct figures are reflected in Form-26AS. You have to rectify your return u/s 154 due to tax credit mismatch.

If the details entered are correct but the tax computation is not proper, then it will vary with the tax calculation provided by Income Tax Department. Here you may have to pay the remaining tax dues and submit the response for outstanding tax demand.

Tax Return not Filed

This is one of the most common income tax notices. In this case, the IT Department will send you a notice to file a return without further delay. Department can send a notice for past 6 assessment years.

Department also has a system called ‘Non Filers Monitoring System’.  Where based on your transactions, a department may send you a notice to file a tax return.

Probable resolution

The taxpayer needs to respond to a notice within the time limit provided in the notice. If his total income is not taxable then he can respond to notice and provide the same reason.

If his total income is taxable then he must file a return at the earliest otherwise he may be penalized. In case of delayed filing, the department can levy a penalty of Rs 5,000 per year. However, the penalty is not mandatory and depends upon the discretion of the assessing officer. However, if any tax is due, the department charges 1% interest per month from the due date of filing.

Discovery, Production of Evidence

In the case of concealment of income, IT Authority may issue notice u/s 131(1A). Present before him and produce books of accounts and other relevant documents. Failure to comply with this notice is punishable with a penalty of Rs. 10,000 for each default. The books of accounts and other evidence produced by the taxpayer may be impounded by IT Authorities for the proceedings.

Probable resolution

The taxpayer or his representative has to appear before the assessing officer. Present his arguments, supporting documents and information on the matters/issues required by the officer.

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