Top 7 Reasons Why You May Get Income Tax Notice

Why Did You Receive Income Tax Notice?

Given below are the top reasons why you might receive an income tax notice -

Mismatch in TDS

At the time of filing the ITR, the Income Tax department matches it with the data mentioned in Form 26AS and Form 16. And if there is a mismatch, the IT department will send you a notice to either correct it in the revised ITR or need clarification in response.

Discrepancy in Income Tax Return

The income tax authorities may send you a notice for non-disclosure or under disclosure of income if they suspect that you have not disclosed all your income from various sources.

To avoid this, you should collect all your financial documents and evidence of all your income sources, such as salary slips, bank statements, bills, etc., and report them accurately when filing your income tax return.

Non-Filing of Income Tax Return

You should always file your income tax return for every assessment year before the due date. If you have not filed your tax return and the deadline is over, you will get a reminder to do so. You may also get a notice under Section 142(1)(i) of the Income Tax Act, which asks you to submit the return. If you have missed the deadline to file an ITR, you have the option to file an updated return where the Income Tax Act allows you a chance to update your ITR within two years, i.e., 24 months from the end of the relevant assessment year.

Non-Reporting of High Value Transactions

You may receive an income tax notice if you fail to report any high-value transaction. Some common examples of high-value transactions that can trigger an income tax notice are as follows:

• Cash deposit of ₹ 1 crore or more in one or more current accounts in a financial year.
• Cash deposit of 10 Lac or more in a year in any savings account.
• Cash withdrawal of ₹ 1 crore or more in one or more current accounts in a financial year.
• Payment received in cash exceeding ₹ 2 lakh for the sale of goods or services by any person.
• Credit card payment of ₹ 10 lakh or more in a financial year by any mode other than cash.
• Transaction in immovable property of ₹ 30 lakh or more.

You should always report these transactions to the Income Tax Department and disclose the source of income and tax paid on them. Otherwise, you may face penalties and scrutiny from the tax authorities.

Unpaid Tax on Interest Income

Unpaid tax on interest income can indeed lead to potential issues with tax authorities. Even if the income is inadvertently omitted or overlooked, tax authorities have mechanisms in place to track such income, especially if it's being credited to your bank account or reinvested in assets.

Receiving a notice for non-payment of tax on interest income is a serious matter and should be addressed promptly. It's crucial to rectify any discrepancies and fulfill tax obligations to avoid further penalties or legal consequences.

Bogus Deductions and Claims

Claiming higher House Rent Allowance (HRA) exemption based on fake rent receipts or claiming deductions under Chapter VI-A without proper documentary evidence indeed constitutes misrepresentation or suppression of facts under the Income Tax Act, 1961. Such actions are considered as misreporting of income.

The Income Tax Department regularly conducts scrutiny of tax returns to ensure compliance with the law. If discrepancies are found between the deductions claimed and the supporting documentation provided by the taxpayer, the department may issue notices demanding proof of the deductions claimed.

Taxpayers are required to maintain proper documentation and evidence to support the deductions claimed in their tax returns. Failure to provide satisfactory proof when requested by the tax authorities could lead to penalties or further legal consequences.

Random Income Tax Scrutiny

Notice u/s 143(3) is issued to taxpayers randomly picked by the AI deployed by the Income Tax Department. The aim behind such random selection of scrutiny cases is to enforce compliance with tax laws amongst people. If you receive this notice, do not panic, just reply to it.

Things To Do After Receiving an Income Tax Notice

Receiving an income tax notice can be unsettling, and you can receive it due to the above-mentioned tax notice reasons, but it's important to remain calm and take appropriate steps to address the situation. Here are some things you should consider doing after receiving an income tax notice:

• Read the Notice Thoroughly: Take the time to carefully read through the notice to understand the reason for it and what the tax authorities are requesting or questioning.
• Understand the Deadline: Note the deadline by which you need to respond or take action. Ignoring the notice or missing deadlines could lead to penalties or further consequences.
• Gather Documents: Collect all relevant documents, such as income statements, deductions, receipts, and any other financial records that may be requested or needed to respond to the notice.
• Seek Professional Advice: Consider consulting with a tax expert who can help you understand the notice and advise you on the best course of action. They can also represent you in communications with tax authorities if necessary. Hire a Tax2win tax expert.
• Respond Promptly: If a response is required, make sure to do so promptly and accurately. Provide any requested information or documentation within the specified timeframe.
• Keep Copies: Make copies of all documents you submit in response to the notice for your records. This can help you keep track of your communications with the tax authorities.
• Review Your Tax Return: Take the opportunity to review your tax return for the relevant year to ensure its accuracy. If you identify any errors or discrepancies, consider filing an amended return.
• Stay Organized: Keep all correspondence related to the notice organized in a safe place for future reference. This includes the original notice, any responses or documents you submit, and any additional communications with tax authorities.
• Follow Up if Necessary: If you have questions or need clarification about the notice or the process, don't hesitate to follow up with the tax authorities or your tax professional for assistance.

Remember that receiving a tax notice doesn't necessarily mean you've done something wrong; it could simply be a routine inquiry or request for additional information. However, it's essential to take it seriously and respond appropriately to avoid any potential penalties or legal consequences. Hire a tax2win tax expert to help in income tax notice assistance and respond to it promptly.