Navigating ITR Notices: Causes And Classifications
Income generated by assets (land, shares, mutual funds etc.) bought under your spouse or child’s name need to be declared by you as well
A notice from the income tax (IT) department - probably one of adulthood’s biggest fears. Notices aren’t always bad news; they could very well be a cash refund! Here’s helping you understand why you could have received a notice, what it means and how to handle it.
Says Manikandan S, Tax Expert, Cleartax, a tax and financial services fintech, “First and foremost, it is important that you understand the difference between an intimation and a notice. An intimation is to highlight the outcome of the processing of your return or conclusion of the assessment, and you may not be required to act upon it.” Such intimations are generally sent after a preliminary assessment, showing a refund or additional tax and can be expected under notice 143(1).
Reasons to Receive ITR Notices
Says Abhishek Soni, CEO and Founder, tax2win, a tax e-filing platform, “The most common reasons for receiving notices after filing their income tax return (ITR) are tax deducted at source/ tax collected at source (TDS/TCS) mismatch, discrepancies in income declared, high-value transactions, errors in returns filings”.
TDS, Income And Documentation Discrepancies
Errors in TDS are the simplest and most common reason for receiving notices. Request your employer to revise the TDS amount credited to you and upload the relevant information on the online portal. Another very common cause is if the assessing officer finds the need for additional information or supporting documents.
With changing regulations and diversified income sources there may sometimes be discrepancies in return filed. You may have forgotten to declare income sources such as interest from deposits or dividends received, claimed a deduction under the wrong section or accidently provided incomplete information.
Some of the types of notice received are 139(9), 142(1), 143(2).
Wealth Tax And High Value Transactions
Investments under your spouse's name, non-transparency on assets on which wealth tax might be levied and un-updated high value transactions are other reasons you may have got an ITR notice. This means that any income generated by assets (land, shares, mutual funds etc.) bought under your spouse or child’s name are taxable and need to be declared by you as well.
If you have declared any items worth over Rs.30 lakh, you are generally taxed a one per cent wealth tax on the amount above Rs 30 lakh, Unawareness and thus non-payment of this tax can be a cause of receiving an ITR notice. To track the relevant taxes the tax department needs to be notified of any high value transaction such as bank deposits of over ten lakh, mutual fund investments over two lakhs and bonds of over five lakh.
The types of notice received here are: 156, 133(6), 143(2).
Adjustments, Escape Assessments And Random Assessments
Sometimes refunds may be adjusted against outstanding demands or payments from the previous years. In such cases a response is only required if you disagree with the adjustment. In other instances you may have been selected randomly for an income scrutiny assessment. This may require you to submit additional supporting documentation as requested.
Probably the only alarming case is receiving a notice when the IT department believes your income as “escaped assessment”. Says Soni, “This implies they believe you have not filed your returns or wrongfully filed returns to escape taxes. In such cases you will be required to file or revise the filed returns along with providing additional supporting documentation.”
Types of notice received here are 143(2), 148, 245.
Responding to Notices
Manikandan recommends verifying the genuinity of the notice on the e-filing portal and cross checking for your personal details and assessment year. After that, understand the reason for receiving a notice, determine the mismatch or procure the relevant documentation and respond with adequate information within the stipulated time. If picked for scrutiny, provide a cover letter with detailed explanations or if applicable fill out the questionnaire provided.
