Any communication from the Income Tax department, be it a simple enquiry or an intimation or receiving a notice, can be unnerving. Recently, the Income Tax department issued 7 lakh letters to those who have entered into high value transactions without quoting PAN – transactions like cash deposits, sale/purchase of immovable property valued at INR 30 Lakh or more, etc.

In this three-part article, we will take you through the circumstances under which an income tax notice can be served to you, how to respond in case you get a notice and how to avoid getting an income tax notice.

Read further to know the circumstances under which you could receive an income tax notice.

#1 – Not filed your IT returns

Any individual earning more than Basic Exemption Limit i.e. Rs. 2,50,000/- p.a. needs to file tax returns compulsorily, even if the tax is already deducted (TDS) and paid . If you have not filed your returns for past few years, then you could get notice/intimation from the IT department.

#2 - Interests from FDs or Savings A/C

Generally banks deduct 10% TDS on the deposits interest by default, but additional tax maybe applicable depending on your income tax bracket. The myth is that one does not need to pay any tax if TDS is cut by the bank. If this has not been, you could get a notice,

#3 - Sudden drop in Income

If there is a significant reduction in your income from last year, it may cause suspicion and might invite an IT Scrutiny. This is more applicable in case of businesses and traders, because their income is highly volatile. However, in case of salaried people, this does not pose a problem.

#4 - Claiming Higher refund amount or Relief under various sections of IT Act

If you have filed your returns claiming a high refund in a particular year, there are chances that you might get a scrutiny. This is because you could be asking for a higher amount to be refunded to you. Dues to this, the tax department may want to have a look at your documents and might question things. Similarly, claiming a relief also attracts scrutiny these days.

#5 – Mismatch in TDS credit

Check & reconcile your form 26AS all taxes paid on your account. Ideally, the TDS amount claimed in your income tax return and the TDS actually updated in your form 26AS should be the same. That makes it important to check your 26AS and make sure it has been updated accurately.

#6 – Non Declaration of Exempted Income

There are various incomes on which you don’t have to pay income tax, but must be still mentioned in the income tax return. Things like your long term capital gains tax from equity/dividends received on equity shares of Indian companies/Saving bank account interest up to INR 10000/PPF interest. These are some of the things which are exempted from tax, but still need to be declared.

#7 – Taking double tax benefits due to change in Job

Sometimes, salaried employees who have changed jobs during the previous year get multiple Form 16 & fail to declare income from all the employers & calculate and pay the due taxes, if any. It may give rise to certain deductions & benefits given twice.

#8 – High Value Transactions

If you have executed high value transactions either for investments or spending then chances of you getting the notice from IT Department are very high. For instance, credit card usage of more than INR. 2 Lakhs p.a. / investing in FDs / depositing more than INR. 10 Lakhs in your bank account, etc. All these transactions need to be reported to the IT department under Annual information Returns filed by respective companies and may attract an enquiry ranging from simple to exhaustive by IT department.

Following the above steps will make sure you stay away from an IT notice. Are there other IT habits that you can think of to steer clear of an income tax notice? Share your views and questions with us on our Facebook and Twitter pages, or email at jaagorein@gmail.com

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Rishabh Parakh

Rishabh is a Chartered Accountant and a founder Director cum Chief Gardener of Money Plant Consulting, A leading tax and investment service provider He also writes for several leading publications in India.

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