What To Do When You Get An Income Tax Notice?

Law
03-Jul-2023
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Sometimes receiving an intimation or notice from the income tax department of India can be surprising for taxpayers, even though they have dutifully filed their income tax returns on time. This unexpected correspondence can leave them feeling uncertain about how to proceed.
To better understand the same, it's important to distinguish between an intimation and a notice. Although the difference between the two may seem subtle, grasping their true meaning is essential. An intimation typically serves as a notification to taxpayers regarding the outcome of their return processing or the conclusion of an assessment. In most cases, receiving an intimation doesn't require any immediate action, although there can be exceptions to it.

Reasons why one can receive an income tax notice

There can exist many reasons why a taxpayer may receive an income tax notice from the department, indicating that further attention is needed from them. Some of them are given below: 

  1. Irregularity in Income: Discrepancy in income is one of the main reasons why an individual or entity receives an income tax notice. Often such as a mismatch between the income declared and the information available with the tax department, leads to an income tax notice. This could arise from errors, omissions, or inaccuracies in the income details furnished during the tax filing process.
  2. Non-Disclosure of Income: When one fails to disclose certain types of income, like rental income, interest earnings, capital gains, or income from foreign sources, it can also be a reason for receiving an income tax notice. It is essential to ensure that all relevant income sources are properly disclosed in the tax return to avoid such notices.
  3. High-Value Transactions: Engaging in significant financial transactions, such as large cash deposits, investments, property purchases, or foreign remittances, can attract the attention of the tax authorities. If the income reported doesn't align with these transactions or if there is suspicion of tax evasion, it may result in an income tax notice.
  4. Inconsistencies in Tax Deducted: If there are discrepancies between the tax deducted at source (TDS) and the income declared in the tax return, it can trigger a notice. This may occur if the TDS details provided by the employer or other deductors differ from the taxpayer's declared income.
  5. Random Scrutiny: The income tax department randomly selects individual tax returns for yearly scrutiny. If a taxpayer's return is chosen, they may receive a notice requesting further documentation, verification, or clarification related to their income, deductions, or investments.

Steps to take when you receive an income tax notice

These are the steps that are recommended for anyone who has received an income tax notice from the income tax department to take: 

Step 1: When you receive an intimation notice under Section 143(1) of the Income Tax Act, 1961, it is crucial to respond within 30 days from the date of receiving the notice.

Step 2: Failing to respond within the specified timeframe will result in the processing of your Income Tax Returns with necessary adjustments, without any further opportunity for you to provide input.

Step 3: Carefully verify the accuracy of your name, address, and PAN number mentioned in the notice upon receiving it.

Step 4: Similarly, cross-check the assessment year mentioned in the notice and ensure it matches your records, along with verifying the e-filing acknowledgment number.

Step 5: Revised returns can only be filed if you made a mistake in your original ITR filing. If necessary, submit the revised return within 15 days.

Step 6: If you discover any errors or faults in the order sent by the Income Tax Department, you can file a rectification return to address those issues.

Step 7: Pay attention to the second page of the notice, as it will provide insight into the reason for its issuance. It may also highlight any discrepancies in the reported income between your filed returns and Form 16/16A/26AS.

Step 8: If the intimation notice includes a demand for additional tax payment, consider it a notice of demand under Section 156.

Step 9: Upon receiving the demand notice, make sure to respond within 30 days to avoid penalties and monthly interest of 1% imposed by the assessing officer after the 30-day period expires.

Dos and Don'ts 

Dos:

  1. Read and Understand the Notice: "Carefully read the Types of Income Tax Notice to grasp its nature of inquiry or request. Understand the specific sections or clauses mentioned and the information sought by the tax department based on the type."
  2. Respond Promptly: Ensure that you respond within the specified timeframe mentioned in the notice. Failing to respond within the given deadline can lead to penalties or further legal complications.
  3. Seek Professional Assistance: If you find the notice complex or are unsure about how to proceed, it's advisable to seek assistance from a qualified tax professional. They can help you understand the notice, gather the necessary documents, and prepare a suitable response.
  4. Provide Accurate Information: When you are replying to the notice, ensure that the information you are providing is accurate, complete, and supported by all the relevant documents. Don’t forget to Double-check the details to minimize any errors or discrepancies.

Don'ts:

  1. Ignore the Notice: Ignoring an income tax notice can have serious consequences. It is crucial not to disregard or delay responding to the notice. Doing so may result in penalties, additional scrutiny, or even legal action.
  2. Submit Incomplete or Inaccurate Information: Avoid submitting incomplete or incorrect information in your response. Make sure to provide all the required details, supported by relevant documentation. This helps establish transparency and credibility with the tax department.
  3. Engage in Unauthorized Representation: Refrain from involving unauthorized individuals or intermediaries who claim to resolve the matter on your behalf. Always consult and engage with qualified tax professionals or authorized representatives to handle your tax affairs.
  4. Panic or Stress: Receiving an income tax notice can be intimidating, but it's essential to remain calm and composed. Panicking or stressing over the situation may cloud your judgment and hinder your ability to respond effectively. Take a deep breath, seek professional guidance, and address the matter systematically.

Documents Required to Reply to an Income Tax Notice

As we know, there are different types of income tax notices that taxpayers receive, and various documents are required to vary with them. However, the basic documents will remain the same to reply to an income tax notice:

  • Copy of the Income Tax Notice
  • Proof of Income source such as (Part B) of Form 16, Salary receipts, etc
  • TDS certificates, Form 16 (Part A)
  • Investment Proof or Financial Statements if they are applicable
  • Any other requested documents

Conclusion

In summary, it is crucial to promptly respond and take appropriate action when you receive an income tax notice. Understanding the importance of the notice, seeking assistance from professionals when required, and supplying precise information along with supporting documents are key to successfully navigating the process. It is vital to adhere to the specified timeframe for responding to the notice and diligently review it for any discrepancies or mistakes in both the notice itself and your tax filings. By following these guidelines, you can effectively resolve the matter, ensure compliance with income tax regulations, and achieve a satisfactory outcome.


Author Bio: Adv. Sumit Soni is a first generation lawyer renowned for his stellar success rate in over 200 cases, achieving above 90% favorable outcomes. Passionate about his work, he prioritizes quality over quantity, ensuring ample personalized attention for each client. He likes to practice artistically, wherein he believes in providing custom and tailored service to the clients, which takes creativity along with intellect. Specializing in criminal, civil, and matrimonial matters, he primarily practices at the Supreme Court. He also practices in the High Court and all District Courts in Delhi. He is also a member of the Supreme Court Bar Association.

Beyond law, Sumit is a BJP spokesperson and President of the International Human Rights Council, Delhi State Board, embodying his commitment to justice and societal change. With his blend of legal expertise and advocacy, he stands as a beacon of excellence in the legal fraternity.