When Income Tax department can send notice to you and what to do

Income Tax Department: Filing income tax returns (ITR) is mandatory for individuals with taxable income to avoid any penal action from the income tax department. However, despite filing the ITR within the deadline, some taxpayers may still receive an income tax notice. This does not necessarily imply any wrongdoing, but prompt and proper response to the notice is necessary. The income tax department issues notices for several reasons, including discrepancies in declared income and actual income, failure to report high-value transactions, incomplete documentation, late filing or non-filing of returns, and random scrutiny.

Let’s take a look at the possible reasons of receiving a notice from the income tax department.

Discrepancies in your declared income and actual income: The income tax department is constantly on the lookout for people who try to evade taxes. If the authorities suspect that there is some discrepancy between your reported income and your actual income, then you could be served notice.

Failure to report high-value transactions: Failure to disclose high-value transactions in the ITR will attract the scrutiny of the tax officials. These transactions include large cash deposits, purchase of property or luxury items. The income tax department requires taxpayers to report all their high-value transactions in order to curb black money and trace all under-reported income.

Read Also: Income tax notices sent to all involved in bogus political donation

Incomplete documentation: If you fail to attach all the required documents while filing ITR, then you may receive a notice from the tax sleuths. It is advisable to submit all the requisite documents in support of the deductions you claim and the total income in a financial year from all sources.

Late filing or non-filing of ITR: The income tax department will certainly issue a notice if you fail to file your tax returns on time or do not file them at all.

Random scrutiny: The income tax department randomly selects the files for which the tax returns need to be scrutinised. If you have paid your tax returns accurately and on time, you have nothing to worry about.

Excessive deductions: If you claim excessive deductions, the income tax officials may send you a notice for further scrutiny.

What to do when received Income Tax Notice

1.Most importantly, file your ITR with honest details and with the deadline, and if unintentionally you have missed or wrongfully filed the return, rectify it as a revised return, after filing the original return.

2. Report losses generated in an assessment year. If you don’t report loss-making transactions, the government might assume that you earned profit and you are trying to suppress your income.

3. Always, cross-check the information or details of your ITR with Form16, Form16A received from the respective company, 26AS, Annual Information Statement, and Taxpayer Information Statement. You can easily download them from the income tax portal. The password of AIS & TIS is <panddmmyy> PAN & Date of birth/incorporation in small alphabets.

4. Nowadays, almost everyone is investing in shares, crypto, and mutual funds, don’t forget to take the complete summary detail from the broker or the website/app you are investing through. You need to give full information about the capital gain & loss that occurred during the assessment year.

5. In case, you have received the notice from the income tax department, don’t forget to reply within the time prescribed and with all the necessary and enquired documents. If you having trouble replying to the notice, consider taking professional help.

The basic documents required to reply to the notice are:-

1. Copy of the Income Tax Form & acknowledgment.
2. Form16 A & B (salary details), Form 16A (TDS certificate), and any other proof of source of income.
3. Investments/ Deduction Proof, if any applicable.