Here are some common reasons why income tax notices are issued and the process for responding to such notices.
With significant digitisation, tax authorities now have wider access to taxpayer information, and are able to adopt higher level of analysis on the same. One fallout of this is that taxpayers are nowadays receiving significant number of notices, automated or otherwise, from the income tax authorities. It is, therefore, important to understand their significance and how these may be responded to.
Here are some common reasons why income tax notices are issued and the process for responding to such notices:
1. Notices to ensure filing of tax returns
Automated reminders are issued ahead of the due date requiring taxpayers to file the tax returns in a timely manner to avoid penalties. An income tax notice under section 142(1) (i) may be issued requiring the taxpayer to furnish the return if not filed within the due date.
What to do: Taxpayers need to file their tax returns where required. If there is no need to file the tax return, suitable intimation may be provided to the authorities.
2. Proposal of adjustments to the taxable income
Discrepancies or mismatch in information disclosed in the tax returns could trigger notices under Section 143(1)(a). For instance, where the income reflected in Form 26AS ( the Annual Tax statement) is not included in the tax returns, or the salary income reflected in the tax returns does not match with that in Form 16, the authorities would propose an adjustment which would increase the taxable income.
“The taxpayer is required to check and confirm whether the income is correctly reported in the ITR and provide an electronic response via the income tax portal. The response could be a confirmation of the proposed adjustment in which case the taxpayer can file a revised tax return or disagree with the proposed adjustments by furnishing a valid reason in the e-proceedings section. The response needs to be filed within the stipulated period which is generally 30 days from the issue of such a notice to avoid automatic adjustment by the Income Tax Department,” says Saraswathi Kasturirangan, Partner, Deloitte India.
Confirmation on refund claimed in the ITR
When the taxpayer has claimed a refund, a communication seeking confirmation of the same would be issued. The taxpayer needs to confirm the refund amount after verification of the same with the ITR filed for the year. If any changes are to be made, then a confirmation needs to be provided informing the I-T department that a revised return would be filed for the year (if within the time limit for filing the revised return).
3. Processing of ITR and issue of intimation
The I-T department carries out a preliminary assessment of all ITRs filed and informs taxpayers of the result of such preliminary assessment. This assessment primarily includes verification of the tax calculation, tax payment, correction of any arithmetical errors and inconsistencies. This is provided to the taxpayer by way of intimation under Section 143(1) of the Income Tax Act within 1 year from the end of the Financial Year in which the return is filed.
Where the changes made are not acceptable to the taxpayer, remedy is available in the form of requesting for a rectification or filing an appeal.
Defective or incomplete return of income
An intimation from the I-T department is sent to the taxpayer when the I-T department identifies defects in the income ITR filed under section 139(9) of the Income Tax Act.
“The taxpayer needs to respond to the notice within 15 days from the date of receiving such a notice by either revising the return to rectify the defects or providing suitable clarification or seeking an extension,” says Kasturirangan.
Income tax scrutiny assessment
The tax authorities pick up certain tax returns for detailed verification on a sample basis. In such cases a notice under section 143(2) of the Income Tax Act would be issued to the taxpayer. The scrutiny could be limited or a complete scrutiny.
“Under limited scrutiny, a taxpayer is only required to submit details with respect to specified transaction/ query for which the scrutiny has been initiated. However, in case of a complete scrutiny, the I-T department can ask the taxpayer to furnish an exhaustive list of documents/information relating to the income and the transactions which the taxpayer has entered into, during the year. Such notices have to be issued within 6 months from the end of the Financial Year in which the returns are filed,” informs Kasturirangan.
The queries raised by the I-T department in the notice should be answered by the taxpayer by filing the submission electronically or by way of physical submission with the AO as the case may be. Once the scrutiny assessment is complete, the taxpayer would receive an order under section 143(3) of the Income Tax Act from the I-T department.
In order to make sure that the tax payer is aware of the status of his tax returns filed, it is advisable to Login to the e-filing portal (https://incometaxindiaefiling.gov.in) using his PAN and the registered password and check the compliance status under the tab ‘My Account’ . This would help the tax payer to provide the responses in a proactive manner to the tax authorities.