Main Reasons for Receiving an Income Tax Notice

 

Top reasons for which you could receive an income tax notice: The Income Tax Department issues an income tax notice for a number of reasons under a number of provisions. Normally, a taxpayer receives an income tax notice as a result of missing or filing their income tax return late, filing it incorrectly, claiming an incorrect tax refund, and many other reasons. The income tax notice is issued by the tax department under sections 143(1), 142(1), 139(1), 143(2), u/s 156, Section 245 and Section 148. Here are the top reasons a taxpayer may receive an income tax notice, based on an exclusive interview with several industry experts.

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1 CA Arpit Jain, Joint MD, Arihant Capital

2 Suresh Surana, Founder, RSM India

3 Prateek Toshniwal, Co-Founder of IVY Growth Associates | MI Capital (UAE)

4 Parry Singh, Founder & CEO, Red Fort Capital

5 Khazana Associates founder Santosh Badhei

6 Himani Chaudhary, financial advisor

6.1 Related

CA Arpit Jain, Joint MD, Arihant Capital

Getting an income tax notice can be stressful. These notices can be issued for various reasons – from as obvious as failing to file an income tax return or a delay, to calculation errors to a request for specific information pertaining to your filings or reporting excessive losses.

Here are some of the common reasons why taxpayers receive an income tax notice:

a) Mismatch in TDS amount: When the TDS claimed in the Tax return doesn’t match with Form 26AS and 16 or 16A.

b) Mismatch in income: Whenever there is a discrepancy between the income tax return and form 26A.

c) Discrepancy in tax returns: There are times when taxpayers make common mistakes like claiming deductions under the wrong sections, or unintentionally failing to add their interest, rent, dividend, or other incomes in their calculations. Such instances will create discrepancies in their tax returns and what they are actually liable to pay and will invite income tax notice.

d) Discrepancies in disclosure of declared income versus your actual income: This is an obvious one. The income tax department is constantly on the lookout for people trying to evade taxes. If the IT authorities suspect that you haven’t disclosed all your income from various sources, then you could be served with an income tax notice.

e) Failing to report high-value transactions: The Income Tax Department requires taxpayers to report all their high-value transactions, so they can curb black money and detect all under-reported income. In case, you fail to report such transactions then this will invite an IT notice. Examples of high-value transactions include cash deposits or withdrawals over  ₹10 lacs, international transactions in foreign currency over  ₹10 lacs, and purchase of mutual funds, bonds, or debentures of over  ₹10 lacs.

f)  Random scrutiny: If you’re unlucky, you could receive the notice because every year, the IT department randomly selects the files for which IT returns need to be scrutinized. If you have paid your taxes diligently and have all the paperwork in order, you have nothing to worry about.

g) Incomplete documentation: Many times, your income tax returns need to be accompanied by some required documentation. If you fail to provide these, then you will receive a notice. These include but are not limited to: your balance sheet and profit and loss statement in case the net profit from your business income or profession exceeds  ₹1.2 lacs, Form 67 if you have received any

Some of the reasons due to which taxpayers may receive income tax notice are as follows:

1) Taxpayers not filing their income tax returns irrespective of their total income exceeding the basic exemption threshold or otherwise being eligible for filing such return

2) Mismatch in the income details as per the returned income and Annual Information Summary (AIS)/ Tax Information Summary (TIS)/ Form 26AS

3) Taxpayers have claimed excess TDS than what is reflected in Form 26AS

4) Discrepancy in the calculation of interest u/s 234A/B/C as per the returned income and as per the revenue authorities records

5) Missing out disclosing certain income or failing to apply clubbing provisions

6) Selection of wrong ITR form leading to a defective return

7) Any high value or unusual transaction which is not commensurate with other details of the returned income