Risk Management System (RMS)

What is the Risk Management System in the Income Tax Act?

A risk management system is an online system that the Income Tax Department uses to identify the ITRs that might require further scrutiny. Last year, the Income Tax Department also sent out various notices to individuals claiming bogus deductions in their ITR. This year too, the Income Tax Department is cracking down on people making such bogus claims.

In addition to this, for FY 23-24, taxpayers are receiving intimations under section 143(1) for ITRs identified by the Risk management system. These intimations are being sent in cases where the taxpayer has made high refund claims or reported a high-value transaction. The taxpayers are required to confirm their refund claim or correct the ITR if required.

When is an Income Tax Intimation Issued?

During the processing of ITR, the Income Tax Department checks internal discrepancies, mathematical errors, tax and interest computations. Once the ITR is processed, the Income tax Department issues an intimation under section 143(1).

A taxpayer can receive intimation under section 143(1) in the following circumstances -

1. When the taxpayer is owed a refund, but the tax department has made some adjustments.
2. When the taxpayer owes additional tax or interest.
3. When the return has been processed with no demand or refund.

Reasons Why Income Tax RMS is Sending Intimations Under Section 143(1)

CPC (central processing center) of the Income Tax Department cross-verifies the information provided by the taxpayers with the external data sources like Form 26AS, TIS and Form 16. Using this, it identifies discrepancies in the return. The CPC flags those returns that have inconsistencies and abnormalities based on certain parameters. Given below are the parameters used to identify returns under RMS -

• Excessive Deductions - If you have made unusually high claim of deductions under home loan interest, HRA or charitable donations.
• Inconsistent Donations - If there is any discrepancy in the reported income and the donations made to political parties or charitable institutions.
• Mismatch in ITR and Form 16 - Differences between the deductions or tax credits claimed by the taxpayer and what is shown in Form 16.
• Omission of Income - Failing to report certaioin income in ITR.
• Excessive Refund Claims - If you have made unjustifiably high income tax refund claims.

What does an Intimation Under Risk Management System Mean?

Being identified by the Risk Management System and receiving and intimation does not necessarily mean that there’s something wrong with your ITR and you don’t need to panic. On the contrary, it simply means that your ITR will be reviewed more carefully as it might involve higha value transactions, high refund claims.

This year, the Income Tax Department is sending intimations to taxpayers to give them an opportunity to review and assess the claims they have made and confirm that they are correct. In case, the taxpayers find an error or a discrepancy in their returns, they can file a revised ITR and correct it to avoid undergoing scrutiny.

Steps to Take on Receiving this Intimation From the Tax Department

Income tax Department has urged the taxpayers receiving this intimation to file their response online on the Income Tax Portal within the specified time frame. If you have received this intimation you need to do the following -

• Verify the claims made in the return you have filed and file a response on the Income Tax portal within 30 days of receiving the email.
• If you find an error/omission in the claim made or disagree with the claim, correct the claim by filing revised return.

What Happens if You Fail to Respond to the Intimation?

• If you fail to respond to this intimation, it will lead to a delay in the processing of your ITR until the concerns in it have been resolved.
• It will also lead to a delay in your refund claims. Therefore, you must provide the necessary documentation to avoid unnecessary penalties.
• If you do not respond to the intimation within the specified time frame, the department might issue a notice and impose interest or penalties.

Should You File a Revised ITR on Receiving an Intimation?

Upon reviewing your ITR, if you find that any income has been omitted or there is an error in the claims made or the income reported, you must file a revised return as soon as possible to avoid further complications and proceedings by the income tax department.

However, if the claims made by you are correct to your knowledge, you can simply confirm the same on the Income Tax Portal.

It is important to be accurate while filing a revised return in such cases as any inaccuracy might be viewed as an attempt to evade taxes by the tax department. Whether you have received the intimation or not, if you believe there is an error in the return filed by you, you should file a revised ITR to avoid penalties and notices.

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