Tag: income tax notice for misreporting income

Income tax notice after ITR processed

After the taxpayer files his income tax return (ITR), the return is electronically processed and matched with the data available with the income tax department. Thereafter, the income tax department processes the ITR and sends an intimation under Section 143(1) to the taxpayer. As a taxpayer, you are required to keep a close watch on all communications received by the CPC after filing your ITR and ensure that processing under Section 143(1) is proper.

Intimation under Section 143(1) is communicated on the registered email address of the taxpayer and is sent as a password protected attachment to the email.

Verify income reported

The taxpayer needs to verify that the income reported in the income tax return is the same as computed under Section 143(1). Where the amounts are the same, it means that the tax department has accepted your tax return without any adjustments and no further action will be required from the taxpayer.

However, where there is a discrepancy, between the income reported in the ITR and the amount computed under Section 143(1), the taxpayer is required to analyse and understand the cause of the difference and submit requisite documents/ clarification online through the income tax portal, with a request for reprocessing of the ITR.

Only adjustments which are apparent from record can be made under Section 143(1). No adjustment can be made on account of legal issues or issues which are debatable. Two of the most common adjustments are given below.

Deduction under Chapter VIA not provided

It has been seen on several occasions that while processing under Section 143(1), the CPC denies deduction under Chapter VI-A. There may be several reasons, but the most common being that the detail of deduction under Chapter VIA is not mentioned in Form 16.

In such cases, the taxpayer will need to submit proof of investments through the portal and request the CPC to reprocess the return. If the CPC is satisfied with the documents uploaded, it would delete the adjustment and provide the deduction.

Credit for self-assessment tax or TDS not provided

In some cases, credit for TDS or self-assessment tax paid by the taxpayer is not considered in the amount computed under Section 143(1). This could be because it is not reflected in Form 26AS or there may be a time lag between the date of payment and updating the same in Form 26AS. In such cases, the taxpayer will have to submit proof of tax payment/deduction like Form 16 and a copy of the challan.

The income tax department provides the taxpayer 30 days from the date of the email to respond to any adjustments made. In case no response is received it is assumed that the proposed adjustments are acceptable and the final Section 143(1) intimation is passed. It is up to the taxpayer to stay vigilant and provide appropriate responses, through the appropriate medium, so as to avoid payment of excess taxes or delay in the issue of refund.

What documents are required to reply to an Income Tax Notice?

The Documents are required to vary with the type of Income Tax notice that is served to the taxpayer. The basic documents needed to reply to an income tax notice would be:

step:1 After the intimation notice under Section 143 (1) is received of the Income Tax Act,1961 the taxpayer has to make a reply within 30 days from the date when the notice is served.

step:2 If the taxpayer fails to respond within the time that is prescribed then the Income Tax Returns will be processed with the necessary adjustments without providing any opportunity to taxpayers.

step:3 Once the notice is received then the taxpayer should cross-check the name, address, and PAN number, mentioned in the notice.

step:4 Similarly, it is necessary to cross-check the assessment year that is mentioned and verify the e filing acknowledgment number.

step:5 Revised returns can be filed only when the taxpayer has made mistake in the original ITR filing. When the taxpayer has opted to revise the return it has to be filed within 15 days.

step:6 The rectification return can be filed only when the taxpayer has found any fault or error in the order that is sent by the Income Tax Department.

step:7 On-Page 2 of the notice that is issued you can understand the reason for which the notice has been issued. It also shows the difference of the mentioned income in the returns that file and Form 16/16A/ 26AS.

step:8 If the intimation notice demands the taxpayers to pay an additional tax amount i.e demand notice then it has to be treated as the notice of demand u/s 156.

step:9 On receiving this notice of the demand the taxpayer has to respond within 30 days to avoid the !% of the interest per month from the 30 days expiry period and a penalty is also imposed by the assessing officer.

What to Do if You Receive a Communication from the Income Tax Department

The income tax department is in the process of sending communications to the taxpayers for any mismatch in details provided in ITR AY 2021-22 (FY 2020-21). It also said that in cases where the ITRs have not been filed and, the department is in possession of information of “specified high-value financial transactions”.

“In some cases of Income Tax Returns (ITRs) filed for A.Y. 2021-22 (F.Y. 2020-21), a ‘mismatch’ has been identified, between the information filed in the ITR vis-à-vis information of specified financial transactions, as available with the Department. In cases where ITRs for AY 2021-22 have not been filed and, the Department is in possession of information of specified high-value financial transactions, the same also needs to be examined,” the income tax department said in a press release dated March 4.

As part of the e-Verification Scheme-2021, the department is in the process of sending communication(s) to the taxpayers for the mismatch in information pertaining to AY 2021-22 (FY 2020-21). This information is being communicated to the taxpayers through their e-mail accounts as registered with the income tax department, it said.

What To Do Now?

The income tax department said taxpayers need to view their Annual Information Statement (AIS) through the e-filing portal and file updated ITRs (ITR-U), wherever found necessary.

“Eligible non-filers can also submit updated returns (ITR-U) u/s 139(8A) of the Income-tax Act, 1961,” it said in the release.

What is Last Date for Filing Updated ITR?

Last date for filing of updated returns (ITR-U) for AY 2021-22 (i.e. for FY 2020-21) is March 31, 2024.

Income Tax Slab In 2020-21

In the financial year 2020-21, the government had given taxpayers the option to choose a new tax regime under Section 115 BAC of the I-T Act. The new I-T slabs was for individuals not availing or foregoing certain specified deductions or exemptions while computing total income for tax purpose.

Under this, annual income up to Rs 2.5 lakh was exempt from tax. Those individuals earning between Rs 2.5 lakh and Rs 5 lakh needed to pay 5 per cent tax. Income between Rs 5 and 7.5 lakh was taxed at 10 per cent, while those between Rs 7.5 and 10 lakh at 15 per cent.

Those earning between Rs 10 and 12.5 lakh paid tax at the rate of 20 per cent, while those between Rs 12.5 and Rs 15 lakh paid at the rate of 25 per cent. Income above Rs 15 lakh was taxed at 30 per cent.

Income Tax Department: Transactions that Can Come Under the Scanner

The Income-Tax (I-T) department can send a notice for various reasons, including transactions undertaken in online and offline modes. Here’s the lowdown on five transactions that will likely put you under the scanner of the I-T department. 

Depositing cash in bank account: As per the guidelines of the Central Board of Direct Taxes (CBDT), in case an individual deposits an amount of Rs 10 lakh or more in cash in a financial year, such a transaction is reported to the Income-Tax (I-T) department.

This money is likely to have been deposited in one or more accounts of the same account holder. Considering an individual is depositing excess money over the prescribed threshold, the I-T department may ask them about the source of the money.

Depositing cash in fixed deposit:  Considering a bank can inquire about cash deposits of Rs 10 lakh in a financial year in a bank account, it applies a similar norm for transactions in fixed deposits (FDs).

In case an individual deposits more than Rs 10 lakh in FDs in a financial year, the I-T department is likely to question them about the source of the money.

Purchasing shares, mutual funds, debentures, or bonds:  Several individuals find investing in shares, mutual funds, debentures, or bonds a suitable option. Such investments may also foster the habit of saving money in an investor.

However, in case an individual uses a large sum of cash to buy shares, mutual funds, debentures, or bonds, it also raises the eyebrows of the I-T department. 

In case an individual does a transaction of Rs 10 lakh or more in any of such investment options, its information reaches the I-T department, which is likely to ask you about the source of money.

Payment of credit card bill: Credit card usage is common these days, and many times, the users pile up bills, which may run into lakhs.

However, in case an individual’s monthly credit card bill exceeds Rs 1 lakh and they wish to pay it in cash, the I-T department is likely to ask you about the source of your money.

Similarly, in case an individual makes a payment of Rs 10 lakh or more in a financial year through online or offline modes, the I-T department may question them ass to where they got the money from.

Real estate transactions: Real estate prices in cities and tier-II cities are significantly high, and large amounts of transactions are a common practice.

However, in case an individual is making a cash transaction of Rs 30 lakh or more while purchasing a property, the I-T department will take notice of such a transaction for sure.

The property registrar will inform the I-T Department, which is likely to question you about the source of the money.

Income Tax Department to send notice to taxpayers: Update Your Income Tax Returns for 2021-22 Now

The Income Tax Department on Monday said it is in the process of issuing notice to taxpayers pertaining to a ‘mismatch’ between the information filed in the Income Tax Return (ITR) vis-a-vis information of specified financial transactions, as available with the department, for the assessment year 2021-22 (FY 2020-21).

The tax department urged the taxpayers to file updated income tax returns (ITRs) for the assessment year 2021-22 by March 31, 2024. This applies to individuals whose cases have been flagged under the e-verification scheme due to mismatches or missing information.

The tax department said in cases where taxpayers have not filed ITRs for the assessment year 2021-22, and the department is in possession of information on specified high-value financial transactions, they also need to examine and file the updated returns.

“In cases where ITRs for A.Y. 2021-22 have not been filed and, the Department is in possession of information of specified high-value financial transactions, the same also needs to be examined,” the tax department statement read.

As part of the e-verification scheme-2021, the department is sending communications to the taxpayers through their e-mail accounts as registered with the I-T Department, the release added.

The Income Tax Department further urged the taxpayers to access their Annual Information Statement (AIS) through the e-filing portal of the Income Tax Department. By reviewing the AIS, they can identify any discrepancies and file updated ITRs (ITR-U) if necessary. 

The tax department said to increase transparency and to promote voluntary tax compliance, this information is reflected in the AIS module and is available to the taxpayer for viewing.

Interest and Dividend Income Mismatch in Income Tax Returns

Weekends usually bring a little respite from the otherwise hectic working schedules. But when one’s mobile and email inbox starts pinging messages and email alerts from the income tax (I-T) department, in such otherwise relaxing weekend, then it definitely becomes a bit of a concern and a spoiler.

Several taxpayers have received messages and emails from the I-T department, intimating them about some artificial intelligence (AI) identified mismatches in their interest and dividend incomes declared in their I-T returns for financial years 2021-22 and 2022-23, vis-à-vis, those reported in annual information system (AIS) by the banks and companies.

In order to reconcile the mismatch, an on-screen functionality has been made available in the Compliance portal of the I-T department’s e-filing website for taxpayers to provide their response. It has been clarified that such messages and emails are not notices. 

But at the same time, the taxpayers who are unable to explain the mismatch have also been prompted to consider the option of furnishing an updated income tax return if eligible, to make good any under reporting of income. In order to declare any skipped interest or dividend income, an updated return can be filed within two years from the end of the relevant year by paying additional taxes of 25%/50%.

Last week, the I-T department has provided a much-needed respite by clarifying that in case the taxpayer has disclosed the interest income in the I-T return under the line item ‘Others’ in the Schedule OS, it need not respond to the mismatch pertaining to the interest income. The said mismatch shall be resolved on its own and will be reflected in the portal as ‘Completed’.

But apart from this reason, the alleged mismatch in the interest income may also arise from other similar practical reasons, wherein there is no under reporting of interest income as such, and there is a genuine and lawful explanation for such mismatch.

Many taxpayers engaged in business, make fixed deposits, which are intrinsic to such business. For instance, a fixed deposit may need to be made as performance guarantee, in order to obtain a business tender. 

Similarly, the fixed deposit may need to be made for obtaining a letter of credit for procuring goods. The incidental interest income on such fixed deposits is usually accounted for as business income and is adjusted against the business expenses, and is not shown under the head ‘income from other sources’. 

There are many favourable judicial rulings allowing for such treatment. However, the I-T department usually challenges such treatment in the notice for regular assessment. In such full-fledged assessment proceedings, the taxpayer gets an adequate opportunity to furnish its lawful explanation to treat the interest income as business income, based on the documentary evidences and binding legal precedents.

But in the present e-verification window, there is no scope for the taxpayers to furnish such detailed explanation and uploading any supporting evidences. The limited possible word count explanation given by the taxpayer, is most likely to be ignored by the AI tool of the department.

Another practical reason for such mismatch is the method of accounting being followed by the taxpayers. The non-corporate taxpayers can opt for the cash basis of accounting and reporting their interest and dividend income. As such the interest and dividend income will be shown by such taxpayers in their I-T returns, only in the year of actual receipt and not in the year of their accrual.

However, the respective banks and companies usually deduct TDS and report such interest and dividend pay-outs on accrual basis only. So, this different methodologies of cash and accrual basis of accounting and reporting, also is, one of the commonly recurring reasons for the AI generated red-flag, but with no possible lawful redressal in the e-verification window.

So, in such cases, in spite of there being no lawful reason to construe the interest or dividend income as under-reported income, the mismatch will continue to persist, and which may in future become the basis for reopening the entire case of such taxpayer by the assessing authority.

Thus, there is an urgent need for the I-T department to recognize and address the above practical reasons for the interest and dividend income mismatch also, just like their clarification on 26 February. Then only this redressal initiative of the I-T department will become a full tasty pie and not just remain a half-baked cookie.

Mayank Mohanka is the founder of TaxAaram India and a partner at S.M. Mohanka & Associates.

How to Respond to an Outstanding Demand Notice from incometax.gov.in

How to Respond to an Outstanding demand at incometax.gov.in? Outstanding demand can be raised by the income tax department for various reasons such as incorrect selection of ITR form, incorrect IT filing due not including TDS, Self-Assessment tax challans, not filing certain forms or other processing errors by CPC.

1. What is an outstanding demand notice?

The income tax department may issue an outstanding demand for a variety of reasons, including improper selection of ITR form, incorrect IT filing due to not including TDS, Self-Assessment tax challans, failure to file specific forms, or other processing issues by CPC.

2. Who can raise outstanding demand?

Outstanding demand can be raised by following persons.

  1. Centralized Processing Center (CPC) : CPC may issue the notice of demand once the income tax return filed by the taxpayer is processed. Intimation given by CPC should be treated as notice of demand u/s 156.
  2. Assessing Officer : In some cases, assessing officer may issue the demand notice. Such cases might be scrutiny notices, rectifications pending with AO etc.IMPORTANT: In such a case, ensure that the DIN (Document Identification Number) associated with the notice is accessible online through your ITD account. Do not encourage recipients to respond to emails from officers that do not originate from the domain of the income tax department. Additionally, do not reply to calls from arbitrary mobile numbers.

3. How to check Outstanding demand through the Income Tax Portal?

The taxpayers can check the outstanding demand through the following process

  1. Login to https://eportal.incometax.gov.in/
  2. Go to Pending Actions and click on Response to Outstanding demand
  3. The next screen will show the current status of demands available on the PAN . The taxpayer needs to take corrective actions on the demand

4. How to Submit Response to an Outstanding demand?

The manner in which a response to an outstanding demand is issued can vary based on the specifics of the case.

  1. Demand is Correct:
    If the taxpayer feels that the demand is correct, he needs to submit the response that demand is correct
    1. If the Demand is correct and you have not paid already, click on e pay taxes and make the challan payment
    2. If Demand is correct and you have paid already, add the challan details and submit the response
  2. Disagree with the Demand:
    If the demand is incorrect, click on “disagree with demand” and select the following reasons which are applicable
    1. Demand paid and challan has CIN (without open challan details)
    2. Demand paid and challan has CIN (with open challan details)
    3. Demand paid and challan has no CIN.
    4. Demand already reduced by Rectification/Revision/Appellate Order
    5. Demand already reduced by appellate order but appeal effect to be given.
    6. Appeal has been filed, Stay petition filed.
    7. Appeal has been filed; Stay granted.
    8. Appeal has been filed; Instalment granted.
    9. Rectification/Revised Return filed at CPC
    10. Rectification filed with AO
    11. Others

IMPORTANT NOTE

If you have selected the response as “Demand is Correct”, you cannot change the response to “Disagree with Demand” later

5. What happens if no response is submitted.

If the taxpayer has not submitted any response to an outstanding demand, the following may happen

  1. Interest on outstanding demand will get accumulated over the time
  2. Outstanding demand will be adjusted against any future refunds

OBSERVATION

In India, tax regulations are becoming increasingly stringent since it is vital to instill basic discipline in order to pay basic tax. We (Indians) have one of the lowest rates of tax compliance worldwide. We at EZTax urge that you settle as soon as you become aware of any demand or discrepancy; otherwise, the cost will be substantially higher.

In addition, certain accountants in India cooperate closely with the evaluation officers. It is imperative that you do not use back channels to resolve your issues, as they may backfire due to the fact that your IT systems are all online and difficult to update, and the AOs are always shifting because you are not aligned with a single jurisdiction. All Online.

6. Deadline for responding to Outstanding demands

Typically, taxpayers are given 30 days to reply to a demand from the date of notification or notification. The deadline is unique to the circumstance in which the request was made.

7. Type of Payment

When the taxpayers are making the payment in response to outstanding demand, they need to select 400-Tax on Regular Assessment while paying

Many taxpayers received SMSs and emails from the income tax (I-T) department

Many taxpayers received SMSs and emails from the income tax (I-T) department in the weekend gone by, intimating them about discrepancies in their interest and dividend incomes.

That is, the I-T department has found that either what many taxpayers have declared as interest and dividend incomes in their I-T returns for financial years 2021-22 and 2022-23 does not match with the information received from banks and other entities, or no return has been filed despite receiving such income.

On February 26, the I-T department clarified that these intimations under the e-Verification Scheme, 2021 do not constitute tax notice but are only meant to provide an opportunity to the taxpayers to reconcile mismatches, if any, on the I-T portal. Taxpayers will not have to submit any documents while doing this. Note that, while failure to provide a response on the I-T portal will attract no penalty now, ignoring this matter can result in future litigation.

The I-T department has released an updated ‘User Guide for Submitting Response to Notices and Letters Received under e-Verification Scheme, 2021’ to aid taxpayers with this process.

First steps to take

To start with, one needs to login to the IT portal (https://www.incometax.gov.in/iec/foportal/) with their PAN and password, then go to the ‘Pending actions’ tab and then click on ‘Compliance Portal’. From there, go to the ‘e-Verification’ tab to see year-wise details of any notices or letters sent by the IT department. You can provide your responses to each of these by clicking on them.

If you are not registered on the I-T portal, you must first register by clicking on the ‘Register’ button on the e-filing website and providing the relevant details.

To play it safe, Mayank Mohanka, Founder, TaxAaram.com and Managing Partner, S M Mohanka & Associates, suggests that even those who have not received any messages / emails must log into the I-T portal and check if they have any income mismatches.

Why the mismatches

If you are wondering why interest and dividend income (other income) related mismatches have popped up in your name, there could be multiple reasons for it.

Mohanka says one major reason could be that taxpayers have shown their interest income under ‘Others’ and not ‘Interest’ in schedule OS where details of all ‘incomes from other sources’ such as interest, dividend etc. have to be mentioned.  As a result, the I-T AI (artificial intelligence) and ML (machine learning) tools may not have captured these details in the person’s IT return, hence resulting in a mismatch.

Another possibility, he says is of businessmen creating fixed deposits intrinsically meant for business purposes and declaring the corresponding interest income as part of their business income (available for setoff against business expenses) and not under the head income from other sources, in their IT returns. “While there are some case laws on this matter, the I-T department has held the position that interest income from such FDs must be declared under the head ‘income from other sources’ in the taxpayer’s IT return and not under the head ‘business income’” says Mohanka.

Thirdly, banks report interest income to the I-T department on an accrual basis (when interest becomes due) whereas taxpayers (other than corporates) may declare this in their returns on a cash basis (that is when they actually receive the interest). This too, can result in mismatches.

What must taxpayers do

In the first situation, the taxpayer does not have to worry as the mismatch will be automatically rectified as clarified by the I-T department too.

“In case the interest income is shown under the line item ‘Others’ instead of ‘Interest’, it would still be considered under the head ‘Income from other sources (IFOS)’ and hence be taxed accordingly. So, if there is a mismatch simply due to reporting of interest income under a different line item under the head IFOS, this would get resolved on its own,” says Sandeep Sehgal, Partner-Tax, AKM Global, a tax and consulting firm.

However, Mohanka says that in the other two cases, the solution may not be that straightforward, as the explanation of the taxpayer may not get due consideration in this e-verification window. “In such cases, it may not be easy to rectify the mismatch. Unlike in case of a regular tax scrutiny where a taxpayer has an opportunity to explain himself, here the taxpayer may not be able to do so,” adds Mohanka.

An updated return must be filed within two years from the end of the relevant year by paying additional taxes and interest. “If an updated return is filed within 12 months from the end of the relevant assessment year, additional income tax would be 25 percent of the aggregate of tax and interest payable therein. However, this could increase to 50 percent if an updated return is filed after 12 months,” elaborates Sehgal.

If taxpayer does nothing

In any case, tax experts warn against ignoring these intimations from the IT department as this could lead to litigation in future.

“The tax department may open/reopen any income tax assessments wherever there are high value transactions that have not been reported by the taxpayers or reported incorrectly and any corrective steps have not been taken,” says Sehgal.

Mohanka, in fact, says that if a taxpayer fails to provide either a satisfactory explanation for the mismatch of income or in its absence, fails to file an updated return, this could result in their case being re-opened in future whereby their entire income (and not just income from other sources) for that financial year may become subject to I-T review.

Intimation Under Section 143(1) of Income Tax Act

A tax notice under Section 143(1) of the Income Tax Act can be issued to begin a summary assessment without calling the taxpayer. Section 143(1) notices are issued based on computerized processing of tax returns without any human interface. In a summary assessment, the Income Tax Department would not call for additional information or documents as requested in a scrutiny assessment.

Summary Assessment under Section 143(1)

An income tax notice under Section 143(1) will be issued in any of the following scenarios after automated verification of tax return filed:

  1. Any arithmetical error in the return;
  2. An incorrect claim, if such claim is apparently wrong in the tax return filed;
  3. Disallowance of loss claimed, if return of the previous year for which set off of loss is claimed was furnished beyond the due date for filing income tax return;
  4. Dissallowance of expenditure indicated in the audit report but not taken into account in computing the total income in the return (applicable from AY2017-18);
  5. Disallowance of deduction claimed under Section 10AA, 80-IA, 80-IAB, 80-IC, 80-ID, or 80-IE, if the return is furnished beyond the due date specified under Section 139(1). 
  6. Addition of income appearing in Form 26AS or Form 16A or Form 16 which has not been included in computing the total income in the return;
  7. Information with is inconsistent with another entry of the same or some other return;
  8. Information required to substantiate an entry which has not been provided like donation information;
  9. If any deduction exceeds the statutory limit allowed;

Responding to Tax Notice

Additional tax is payable by the assessee, after making adjustments mentioned below and giving credit to the taxes and interest paid. In such a case, the taxpayer will be asked to pay the amount due within 30 days. Tax is refundable to the assessee, after making adjustments mentioned below and giving credit to the taxes and interest paid.

There is an increase/decrease in the loss declared by the assessee and no tax or interest is payable by the assessee and no interest is refundable to the assessee.

Time Limit

Assessment under section 143(1) can be made within a period of one year from the end of the financial year in which the return of income is filed. Thus the intimation for tax or interest due under Section 143(1) should not be sent after the expiry of one year from the end of the financial year in which return is filed.

Process for Responding to Income Tax Notice under Section 143(1)

The tax notice u/s 143(1) will be sent to the assessee specifying the sum determined to be payable by, or the amount of refund due to the taxpayer. In case there is no sum payable or refundable, the acknowledgement of the return of income will be deemed to be the intimation.

The taxpayer should note that merely because notice is received from the income tax department, it does not mean that it is mandatory for the taxpayer to appear in person before the authorities. In many cases, it shall be sufficient if the person receiving the notice furnishes a response to it in the physical or electronic mode.

If the taxpayer would like to revise the income tax return after receiving a notice under Section 143(1), the assessee must be aware that the deadline for revising the return is 15 days from the date of the notice. If the taxpayer fails to respond in a timely manner to the income tax notice u/s Section 143(1), the income tax return will be processed after making necessary adjustments mentioned in the income tax notice.

To respond to an income tax notice under Section 143(1), follow the steps below:

Step 1: Log in to your account on the Income Tax Department E-Filing website.

Step 2: Click on the E-Proceedings tab and select E-Assessment/Proceedings.

Step 3: Select Prima Facie Adjustment u/s 143(1)(a).

Step 4: You will see the details of the notice received. Click on Submit to being the process of submitting the response.

Step 5: You will now see the list of all mismatches identified. Click on the drop-down next to the Response to submit a response to the mismatch.

Step 6: In case you have any specific information or explanation, enter the same in the justification or remarks.

Step 7: Submit any supporting documents regarding the amounts of discrepancy before you submit your response.

Step 8: Click on “Submit”. Once the response is submitted, an acknowledgement will be provided.

Read more at: Income Tax Department has to send the intimation notice to the taxpayer

Check the following points when you receive an intimation u/s 143(1)

The following are the points that you must check when you receive an intimation u/s 143(1): 

  • The document identification number in the intimation 
  • Name on the intimation 
  • Check whether the deduction claimed under 80C, and sections are considered or not 
  • Income is mentioned under appropriate head 
  • Check whether the income is repeated or not 
  • Check whether any rebate claimed or allowable, or relief u/s 89, 90/90A/91 are considered in the intimation or not 
  • Self-Assessment Tax paid and TDS/TCS claimed Advance Tax paid in the computation by CPC (Central Processing Centre) 

What is the password to open intimation u/s 143(1)?

To open the intimation u/s 143(1) you need to enter the correct password to access the file. The password for these files is your PAN number in lower case and your date of birth in DDMMYYYY format. For example, if your PAN number is MARGK5108Q and your date of birth is 11 October 1984, then the password will be ‘margk5108q11101984’.

FAQs on Intimation Under Section 143(1) of Income Tax Act

  1. How to open intimation u/s 143(1)?To open intimation u/s 143(1) use your PAN and date of birth as password. For example, if your PAN is DARGK6914q, and your birth date is 3rd October 1993, then the password will be dargk6914q03101993.
  2. How will I receive Section 143(1) notice from the IT Department?You will receive the Section 143(1) notice from the Income Tax Department through email with the subject line ‘Your ITR intimation’ and you will also receive an SMS alert informing that intimation notice has been sent to your registered email ID.
  3. How to file rectification for intimation u/s 143(1)?Log in to your income tax portal account to rectify the intimation u/s 143(1) and click on the Service tab. Select the rectification option and choose relevant A.Y. and file.
  4. What to do if there is no mismatch in an intimation u/s 143(1) notice, demand, or refund?If there is no mismatch in an intimation u/s 143(1) notice, demand, or refund, then you need not do anything, as it means that the ITR has been processed successfully.
  5. Is intimation u/s 143(1) an assessment order?No, intimation u/s 143(1) intimates about the processing of the return, and hence, it is not an assessment order.
  6. If I have zero refunds and tax demand, and proper sync on the taxpayer and 143(1) section columns, then do I need to reply to 143(1) intimations?If you have zero refunds and tax demand, and proper sync on the taxpayer and 143(1) section columns, then you need not reply.
  7. Can I revise the income tax return after receiving the intimation u/s 143(1)?Even after receiving intimation u/s 143 (1), you can revise your income tax return by 31 December of the relevant assessment year.
  8. Is the tax assessment order and intimation u/s 143(1) the same?No, the intimation u/s 143(1) and the tax assessment order are not the same.
  9. Can I use intimation u/s 143(1) as address proof?Yes, you can use the intimation u/s 143(1) as an address proof.

Read more at: Income Tax Notice: Know when and to whom the notice of section 143(1) comes, what to do if it comes

Income Tax: 5 high-value cash transactions may attract I-T notice

The misconception that cashless transactions are less traceable by the Income Tax Department has arisen due to the increasing prevalence of such transactions. Nevertheless, this belief is incorrect. This is because banks and other financial institutions must notify the Income Tax department of transactions surpassing a specified threshold. This encompasses card payments, UPI transactions, as well as cash deposits, and withdrawals beyond a designated limit.

The department employs advanced data analytics tools to detect disparities between declared income and incurred expenses. It can cross-check information from diverse sources such as bank statements, property records, investment details, and travel records to construct a comprehensive financial profile of individuals. Apart, it also can collect information from external sources such as employers, travel agencies, and stock exchanges to validate income sources and pinpoint possible discrepancies.

This degree of scrutiny proves valuable in suspected cases of tax evasion, enabling the department to initiate scrutiny assessments, issue notices, and conduct inquiries directly to accumulate evidence and recover taxes. Below is a compilation of common transactions that could trigger a tax notice, even when conducted in cash:

Depositing large amounts in cash in savings accounts

Depositing an amount exceeding ₹10 lakh in a single or combined financial year attracts attention from the Income Tax Department (ITD) in India. Any cash deposit surpassing ₹10 lakh in a financial year (April 01 to March 31) across all your savings accounts is duly reported to the ITD. The Central Board of Direct Taxes (CBDT) requires banks to report such transactions. Even if the deposit is divided among multiple accounts, any cumulative amount exceeding ₹10 lakh will still be flagged.

Surpassing the ₹10 lakh limit doesn’t inherently suggest tax evasion, but it does prompt scrutiny from the Department. Explaining the source of the deposited funds becomes necessary, particularly if it doesn’t align with your declared income. If the explanation is considered unsatisfactory or if discrepancies arise in your tax returns, you could potentially face additional inquiries or penalties.

The ITD’s evaluation is also influenced by the intended use of the deposited funds. For instance, placing business income into a personal account could lead to concerns. Your comprehensive financial profile, encompassing income sources, expenses, investments, and other significant transactions, is taken into account by the ITD. Ensuring compliance is essential; maintaining accurate records and aligning your tax returns with your income and expenses is crucial to prevent unwarranted scrutiny.

Fixed deposits made with cash

Given the recent uptick in fixed deposit (FD) rates, these have become increasingly appealing choices for investors, especially for those in search of a steady and predictable income. The existing limit for reporting cash deposits to the ITD is ₹10 lakh within a single financial year (April 01 to March 31), irrespective of the purpose, including fixed deposits. It is crucial to take note of multiple deposits across different bank accounts. Even if you divide the cash deposit into smaller amounts across various accounts, any combined sum surpassing ₹10 lakhs will be brought to the attention of authorities.

Surpassing the limit doesn’t inherently indicate tax evasion, but it does attract the ITD’s attention, necessitating an explanation for the source of the funds. This scrutiny applies to any fixed deposit exceeding ₹10 lakhs.

The ₹10 lakh limit applies to the cumulative value of your FD holdings across all accounts and financial institutions, not solely to the individual deposit amount. Similar to cash deposits, surpassing this threshold may trigger inquiries regarding the source of funds, particularly if it doesn’t align with your declared income.

Purchases of shares, mutual funds, and bonds made in cash

Investing in bonds, shares, mutual funds, and debentures with cash transactions could result in an income tax notice if the investment surpasses a threshold of ₹10 lakh. Digital transactions, on the other hand, leave behind an online trail for both investors and the ITD alike.

Surpassing a particular threshold may prompt scrutiny from the ITD, but it does not automatically indicate the issuance of a tax notice or any wrongdoing. The ITD’s emphasis lies in identifying inconsistencies between declared income and expenses rather than discouraging investment through specific thresholds.

Repaying credit card bill in cash

There is no explicit rule mandating automatic scrutiny for cash payments towards credit card bills, irrespective of the amount. However, if you make a cash payment for a monthly credit card bill exceeding ₹1 lakh, the department automatically seeks information about the source of funds.

Surpassing any high-value transaction threshold, which includes cash payments, could initiate general scrutiny by the ITD. This examination is designed to uncover possible disparities between your declared income and expenses and is not specifically focused on credit card bill payments.

Cash payments related to properties

In India, when acquiring a property valued at over ₹30 lakhs, the ITD mandates the buyer to disclose the origin of the funds utilized for the purchase. This measure is implemented to counteract tax evasion and prevent money laundering activities.

The existing threshold for compulsory declaration of the source of funds is ₹50 lakhs for property acquisitions in urban areas and ₹20 lakhs for rural areas. Nevertheless, certain states may enforce more stringent thresholds, hence it is advisable to verify the specific regulations applicable in your region.

You have the option to declare the source of funds by including it in the registration documents or by submitting Form 26QB to the ITD. Even if the property purchase value is below the threshold, the Department retains the authority to request the source of funds if there are suspicions of discrepancies in your income or other transactions. Neglecting to declare the source of funds may result in penalties, tax assessments, and potentially lead to investigations.

To address an ITD notice concerning high-value cash transactions, it is essential to possess sufficient documentation substantiating your assertion about the source of funds. This documentation may include bank statements, investment records, or inheritance papers.

Income Tax Department Issues Notices for Mismatched Income Disclosures

INCOME TAX DEPARTMENT ISSUES MASS NOTICES FOR ITR MISMATCH FOR FY 2022-23 AND FY 2021-22

The issue concerns bulk compliance communication from the Income Tax Department regarding income mismatches. In most cases, the taxpayer has already disclosed their income, which doesn’t match with the AIS/TIS. An example is provided, where the disclosed interest in the ITR differs from the interest as per AIS/TIS, leading to a communication of mismatch. It’s emphasized that the system’s method of checking the interest from unsecured loans/non-bank parties is incorrect. The correct disclosure method is highlighted, along with relevant images depicting the issue.

BULK COMPLIANCES COMMUNICATION FROM INCOME TAX DEPT FOR MISMATCH OF INCOME!!

In majority of such cases, assessee has duly disclosed his income and there is no mismatch if compared with AIS/TIS.

Sharing one example and requesting @IncomeTaxIndia @FinMinIndia  to look into the matter before it turns into unnecessary headache of honest taxpayers & professionals

Interest as per AIS/TIS – Pic 1
From Bank              – 448227
From Other Party – 503250
(TDS Deducted)

Total Interest        – 951477

Disclosure in ITR – Pic-2
Interest on Deposits (Bank/Post Office)- 448227
Interest-OTHERS                                             –  511793

Total Int. disclosed in Other Sources    – 960020
(higher than appearing in AIS/TIS)

Now in above case, Mismatch of Rs. 503250 has been communicated i.e. Interest of Party (other than bank) on which TDS has been deducted has been considered as Mismatch – PIC 4

System is checking Interest from Unsecured loan/Non Bank parties etc. in column Int. on Deposits (Bank/post office/Cooperative Society)-[eligible for 80TTB dedcution] , WHICH IS TOTALLY INCORRECT.
This SHALL BE disclosed in Interest-Others in Other Sources head and has been disclosed the same way!!

Income Tax Department has sent information mismatch alerts through emails to taxpayers

The Income Tax Department recently sent out a communication about an Information Mismatch Campaign for the financial years 2022-23 and 2021-22. Many assesses received this communication regarding a mismatch in Interest Income. The discrepancy arose from disclosing interest on fixed deposits and interest income from loans under different line items in the ITR under Income from other sources. The response tab does not provide an option to explain that the difference in interest shown as a mismatch is already disclosed under a different line item. If the AI system of the Income Tax Department is not improved and directed properly, it may lead to a lot of litigation in the future despite the proper discharge of tax liability.

Income Tax as usual Mass communication will be an headache for many :
Latest Communication from Income Tax Department: The email has been sent by Income tax department to many assessee on 24/02/2024 as communication regarding Information mismatch campaign for FY 2022-23 and FY 2021-22.

On opening the same through compliance portal, it is observed that the department has issued notice for mismatch of  Interest Income. on further scrutiny it is found that mismatch has been occurred in the department system due to disclosure of Interest on Fixed deposit and Interest Income from loan under different line item in ITR under Income from other sources (which is general practice of disclosing by many one). 
Moreover In response tab there are no option to mention that the difference of interest shown as mismatch/under reported is already disclosed under different line item as any other interest income.

If AI system of Income tax department is not further improved/directed properly, a lot of litigation will arise and pile up in near future resulting to harassment to the asseee even after proper discharge of their tax liability.

Intimation Under Section 143(1) of Income Tax Act

Section 143(1) of the Income Tax Act, 1961, is essentially a computer generated automated message which lets the taxpayer know of any error that exists in his/her tax filing. It also tells the taxpayer if he/she has any interest that is payable.

Anytime someone receives a notice from the Income Tax Department, there seems to be an overwhelming sense of trepidation that goes with it. Just looking at such envelopes can bring thoughts of impending fines and appearances and adds to the stress of daily life. But not all notices come bearing bad news. While some bear great news such as tax refunds, there are a few that are more of an announcement or statement of facts and have no positive or negative impact.

One such notice is the Intimation under section 143(1). This notification is a computer generated message stating any errors made or any interest found payable or refundable. This message is generated automatically and has no human intervention. These intimations are often sent via email within a time frame of 1 year from the financial year in which the return was filed.

What is Intimation u/s 143(1)?

The details submitted to the tax department and the details considered by the department to process the tax return are summarised in the Intimation u/s 143(1). The following are the details present in the Intimation u/s 143(1):

  • Sequence number of refund
  • Details of assesses, such as name, address, etc.

When does One Receive an Intimation under Section 143(1)?

The below three instances are the primary reasons for having an intimation notice generated.

  • If the taxpayer has paid extra tax then the notification will mention the amount of tax refund. If the refund value is above Rs. 100, then the refund will be paid out to the taxpayer. Refund values below Rs. 100 will not be paid out.
  • If the taxpayer has paid taxes, which after computation are found to be short, then the notice will state the amount of tax due by the taxpayer and will also enclose a challan for the same payment.
  • A simple notice which states that the tax returns filed by the taxpayer fall in line with the computation made by the assessing officer. In such cases no specific intimation is sent to the assessee and the assessee should treat the ITR V acknowledgement of filing of return of income as the intimation notice.

Till when can I receive intimation u/s 143(1)?

Intimation can be received up to one year from the end of the financial year in which the return is filed.

For example, if the return for the year 2021-22 was filed on 18 June 2022, then the financial year ends on 31 March 2023, and you can receive intimation till 31 March 2024 and not after that. The response should be submitted within the specified timeframe in case any action required to avoid legal complication.

What if no intimation is received till the expiry of one year?

Your ITR–V acknowledgment will be considered your intimation; in case you do not receive intimation till expiry of one year from the end of the financial year in which you have filed your return.

How is the intimation u/s 143(1) received?

Here are the required details regarding how the intimation is received:

  • Intimation is received in your registered email ID

What is the password to open intimation u/s 143(1)?

To open the intimation u/s 143(1) you need to enter the correct password to access the file. The password for these files is your PAN number in lower case and your date of birth in DDMMYYYY format. For example, if your PAN number is MARGK5108Q and your date of birth is 11 October 1984, then the password will be ‘margk5108q11101984’.

How to get the Intimation u/s 143(1) again?

The following are the steps to get intimation u/s 143(1) again, on case you are not being able to receive your intimation on your registered mail ID: 

  • Visit the e-filing portal
  • Log into the portal by entering your login credentials
  • Click on the ‘Income Tax Return’ option under ‘e-file’ option
  • Click on ‘View Field’
  • New page will appear showing the filed returns
  • Click on the ‘Download Intimation Order’

Check the following points when you receive an intimation u/s 143(1)

The following are the points that you must check when you receive an intimation u/s 143(1): 

  • The document identification number in the intimation 
  • Name on the intimation 
  • Check whether the deduction claimed under 80C, and sections are considered or not 
  • Income is mentioned under appropriate head 
  • Check whether the income is repeated or not 
  • Check whether any rebate claimed or allowable, or relief u/s 89, 90/90A/91 are considered in the intimation or not 
  • Self-Assessment Tax paid and TDS/TCS claimed Advance Tax paid in the computation by CPC (Central Processing Centre) 

How to deal with Intimation under section 143(1)?

  • Firstly, a taxpayer should not fret if they receive such an intimation. They should check for particulars and see if the details mentioned do belong to them such as name, PAN number, and assessment year.
  • The second step would be to check if the notice was sent either due to tax refundable or tax payable. In cases of tax refundable, only those values exceeding Rs. 100 will be refunded and this refund will be paid out in due course of time without the taxpayer having to provide any additional details.
  • If the notice was sent due to tax payable, then the taxpayer needs to see the cause of discrepancy. These causes may be due to simple arithmetic errors, inadequate documents submitted, undeclared sources of income, or deductions filed under the wrong sections.
  • If the computation seems satisfactory, then the taxpayer must proceed to pay the tax difference immediately but if the taxpayer is unhappy with the computation made and would like to refute the notice then they can consult with a competent CA and contact their income tax officer.

FAQs on Intimation Under Section 143(1) of Income Tax Act

  1. How to open intimation u/s 143(1)?To open intimation u/s 143(1) use your PAN and date of birth as password. For example, if your PAN is DARGK6914q, and your birth date is 3rd October 1993, then the password will be dargk6914q03101993.
  2. How will I receive Section 143(1) notice from the IT Department?You will receive the Section 143(1) notice from the Income Tax Department through email with the subject line ‘Your ITR intimation’ and you will also receive an SMS alert informing that intimation notice has been sent to your registered email ID.
  3. How to file rectification for intimation u/s 143(1)?Log in to your income tax portal account to rectify the intimation u/s 143(1) and click on the Service tab. Select the rectification option and choose relevant A.Y. and file.
  4. What to do if there is no mismatch in an intimation u/s 143(1) notice, demand, or refund?If there is no mismatch in an intimation u/s 143(1) notice, demand, or refund, then you need not do anything, as it means that the ITR has been processed successfully.
  5. Is intimation u/s 143(1) an assessment order?No, intimation u/s 143(1) intimates about the processing of the return, and hence, it is not an assessment order.
  6. If I have zero refunds and tax demand, and proper sync on the taxpayer and 143(1) section columns, then do I need to reply to 143(1) intimations?If you have zero refunds and tax demand, and proper sync on the taxpayer and 143(1) section columns, then you need not reply.
  7. Can I revise the income tax return after receiving the intimation u/s 143(1)?Even after receiving intimation u/s 143 (1), you can revise your income tax return by 31 December of the relevant assessment year.
  8. Is the tax assessment order and intimation u/s 143(1) the same?No, the intimation u/s 143(1) and the tax assessment order are not the same.
  9. Can I use intimation u/s 143(1) as address proof?Yes, you can use the intimation u/s 143(1) as an address proof.

Can You Revise Your ITR After Receiving a Income Tax Notice From Income Tax Department?

Filing income tax returns can be complex and may lead to errors and tax notices from the income tax department. However, receiving a notice doesn’t always signify trouble; it might indicate the need to correct a mistake on the tax return. Taxpayers can revise their income tax return under Section 139(5) of the Income Tax Act to correct unintentional errors or omissions, even after receiving a tax notice. The revised return can be filed before the expiry of one year from the end of the relevant assessment year or before the completion of the assessment year, whichever is earlier. It’s crucial to pay attention to the severity of the error or omission, as different notices under different sections of the Income Tax Act may be issued by the tax authority. Taxpayers have the option to revise both online and offline income tax returns and are advised to seek guidance from tax experts if needed. Additionally, an “updated return” introduced by the Finance Act 2022 can be submitted within two years following the end of the relevant assessment year, under certain conditions. Lastly, receiving a tax notice should be seen as an opportunity to amend mistakes made in the original income tax return, rather than a cause for panic or worry.

Filing income tax returns can sometimes be complex and prone to errors, leading to a tax notice from the income tax department, which is often perceived negatively. However, it is essential to remember that it doesn’t always signify trouble; sometimes, it might just be an indication for you to correct a mistake on your tax return. One frequently asked question is whether taxpayers can revise their income tax return after receiving a tax notice. The answer is yes.

Under Section 139(5), the Income Tax (IT) Act entitles taxpayers to revise their IT returns. Taxpayers can use this provision to correct the discrepancies in their IT returns, should there be any unintentional errors or omissions, even after receiving a tax notice. You can revise it prior to the expiry of one year from the end of the relevant assessment year or before the completion of the assessment year, whichever is earlier.

Suresh Surana, Founder, RSM India, said, “Revised return u/s 139(5) of the Income Tax Act, 1961 (hereinafter referred to as ‘IT Act’) can be filed by taxpayers who discovers any error, omission or any wrong statement furnished either in their original return u/s 139(1) or belated return u/s 139(4) of the IT Act. It is pertinent to note that such revised return can be furnished at any time three months before the end of the relevant assessment year (For instance, 31 December 2023 in respect of Assessment Year 2023-24, i.e. for Financial Year 2022-23) or before the completion of the assessment, whichever is earlier.”

Echoing similar views, Divakar Vijayasarathy, Founder and CEO of DVS Advisors, said, “Section 139(5) provides that a return may be revised at any time before three months before the end of the relevant Assessment Year or before the completion of the assessment, whichever is earlier. The word assessment refers to assessment under sections 143(3) and 144. Assessment is said to be completed only on the date of service of order. Mere issue of notice shall not be considered as completion of the assessment, and hence revised return shall be filed, provided the time limit of filing, i.e., December 31 of the AY, has not elapsed.”

Read more at: Income-tax: Advisory on Form 3CA-3CD, 3CB-3CD to avoid errors in filing

As a taxpayer, you must pay meticulous attention to the tax notice. Depending upon the severity of the error or omission in your original return, the tax authority may issue different notices under different sections of the Income Tax Act. For instance, a notice under Section 143(1) could be for trivial discrepancies. In contrast, a notice under Section 143(2) might indicate the need for scrutiny assessment, implying that your tax return requires comprehensive review.

Surana said, “Receipt of intimation u/s 143(1) of the IT Act does not refer to the completion of the assessment, and as such, a taxpayer would be eligible to file their revised return after receipt of such intimation. However, in the case where the taxpayer received scrutiny assessment order u/s 143(3) of the IT Act or Best judgment assessment order u/s 144 of the IT Act, the same would constitute completion of the assessment, the taxpayer would not be eligible to furnish a revised return with respect to such year in accordance with Section 139(5) of the IT Act. However, a taxpayer would be able to furnish their revised return in case only a notice u/s 143(2) is received since receipt of such notice does not constitute completion of the assessment.”

In case of a tax notice due to a mismatch of income or improper deduction of taxes, a revision of your ITR might be a good solution to rectify the error. You can revise both online and offline income tax returns, ensuring you keep a revised return receipt for reference. It’s essential to engage a tax expert if you need clarification on any aspect of revising your tax return.

Alok Agrawal, Partner at Deloitte India, said, “An “updated return” as introduced by Finance Act 2022 can be submitted within two years following the end of the relevant assessment year (AY), if there is additional income subject to taxation resulting in an increased tax liability, subject to payment of additional amount (25% or 50% of tax and interest depending upon the timelines). However, it is important to note that the updated return cannot be filed in certain situations including where any proceeding for assessment is pending for the said tax year.

Furthermore, a taxpayer gets a chance to disclose any additional income by filing return in response to a reassessment notice from the income tax officer, where the Revenue authorities believe that income has escaped assessment, added Agrawal.

However, one should understand that receiving a tax notice should not necessarily be a cause for panic or worry. Instead, you must view it as a chance to amend mistakes made in your original income tax return. 

Read more at: Let’s understand Revised Return

Income Tax Department sends notice to salaried Individuals asking proof of deductions claimed in ITR

Beware of Misusing Tax Exemptions: Income Tax Department Initiates Notice Process: The Income Tax Department has initiated sending notices to salaried individuals requesting evidence of deductions and exemptions claimed in the Income Tax Return (ITR) Form for the Assessment Year 2023-24.

Salaried individuals can claim various exemptions and deductions related to HRA, LTA, housing loan, insurance, ELSS, and medi-claim to save on taxes under the old tax regime.

However, misuse of these provisions by individuals for fake tax exemptions could result in an Income Tax Notice. Tax professionals and chartered accountants should ensure no fake tax claims are made while filing ITR. It is suggested to opt for the new tax regime, which has become lucrative after the Budget 2023, instead of claiming incorrect exemptions or deductions.

Income Tax: Income Tax Department may soon send notice to such people, check update quickly

Central Board of Direct Taxes (CBDT) Chairman Nitin Gupta said that the department will send notices only to those taxpayers about whom it has definite information.

The Income Tax Department will soon send notices to people who have not filed Income Tax Return (ITR). According to Business Today, the Economic Times report states that tax notices will also be sent to those people whose tax has been deducted at source. This means that if TDS has been deducted but ITR has not been filed then a notice may come.

Central Board of Direct Taxes (CBDT) Chairman Nitin Gupta said that the department will send notices only to those taxpayers about whom it has definite information. He said that the focus of the Income Tax Department ranges from reducing the refund time to updating returns or resolving major tax disputes. Also the department wants to improve the service for taxpayers.

Management center resolving tax related disputes

CBDT Chairman said that CBDT has set up a Demand Management Center in Mysuru, which is focusing on tax disputes of more than Rs 1 crore. He said that under this, taxpayers can contact CA and officials to resolve these tax disputes. Gupta said that earlier it was limited to only the Karnak dispute, but now it is solving the issue of entire India.

Rebate on outstanding taxes in the budget

In the Interim Budget 2024, Finance Minister Nirmala Sitharaman had announced to withdraw the outstanding tax demand up to Rs 25,000. He said there were a large number of small, unverified, unresolved or disputed direct tax demands, many of them dating back to 1962. This is recorded in the records, due to which honest taxpayers have faced problems regarding refunds.

What did the Finance Minister announce?

In the interim budget, Nirmala Sitharaman said that I propose to withdraw the outstanding direct tax demand up to Rs 25,000 for the period up to the financial year 2009-10 and up to Rs 10,000 for the financial year 2010-11 to 2014-15. About one crore taxpayers are expected to benefit from this.

Transactions seen as red flags by Income Tax Department; can send tax notice

Many taxpayers are dreading after some people complained on their social media handles of getting Income Tax notices. Several transactions could potentially result in the issuance of an Income Tax notice. Presented below are a few of the most prevalent instances:

Huge cash deposits in savings accounts

The Income Tax Department (ITD) diligently monitors all monetary deposits and withdrawals carried out by individuals. Should an individual who holds a savings account deposit an amount exceeding ₹10 lakh in cash within a fiscal year, the department could potentially issue them a notice, necessitating an explanation for the origin of these funds.

The department has instituted a benchmark of ₹10 lakh for cash deposits within savings accounts. This implies that any cash deposit surpassing ₹10 lakh in a savings account throughout a fiscal year will trigger an automatic notification to the department.

Subsequently, the department will launch an inquiry into the provenance of the funds channelled for the deposit. Should the department find the explanation satisfactory, no notice will be dispatched. However, if the explanation fails to meet their standards, an official notice might be sent to the account holder, mandating them to elucidate the source of the funds.

Several factors could lead to the department issuing a notice to an account holder depositing more than ₹10 lakh in cash within a fiscal year. One of these reasons could be the department’s suspicion that the funds are derived from illicit origins, such as money laundering or tax evasion. Another concern could be the potential involvement of the funds in the financing of terrorism or other illicit activities.

Credit card bills paid in cash in excess of ₹1 lakh

The department diligently monitors all transactions made through credit cards. If a payment exceeding ₹1 lakh is made in cash towards your credit card bill within a fiscal year, the department may initiate a notice requesting an explanation for the origin of these funds.

The department has established a benchmark of ₹1 lakh for cash payments towards credit card bills. In practical terms, this implies that should you make a cash payment exceeding ₹1 lakh towards your credit card bill in a fiscal year, this transaction will trigger an automatic notification to the department.

Subsequently, the department will initiate an inquiry into the provenance of the funds utilized for the payment. If the department deems the explanation satisfactory, no notice will be dispatched. However, if the provided explanation falls short of their standards, a formal notice might be sent to the cardholder, prompting them to elucidate the source of the funds.

Several factors might lead to the department issuing a notice to a cardholder who makes a cash payment surpassing ₹1 lakh towards their credit card bill in a fiscal year.

Cash deposit exceeding ₹10 lakh in bank FDs

The Reserve Bank of India (RBI) has established a cap of ₹10 lakh for cash deposits into fixed deposits (FDs). This signifies that you are restricted from depositing an amount exceeding ₹10 lakh in cash within a single FD account during a financial year.

Should you initiate a cash deposit surpassing ₹10 lakh into a solitary FD account, the bank is mandated to report the transaction to the RBI. Subsequently, the RBI holds the prerogative to scrutinize the origin of these funds and implement suitable measures.

Several rationales underpin the RBI’s imposition of this threshold. One rationale is the prevention of money laundering and other unlawful activities. Additionally, this measure aids in monitoring the flow of capital within the economy.

In circumstances requiring a deposit beyond ₹10 lakh into an FD account, this can be accomplished through multiple deposits each not exceeding ₹10 lakh. Alternatively, you can choose to deposit the funds using non-cash methods such as checks or bank transfers.

Importantly, transgressing the ₹10 lakh ceiling for cash deposits into FDs carries significant ramifications. It could entail a demand for clarifying the origin of the funds and potentially lead to penalties being imposed.

Steep cash infusion in the stock market

The department meticulously monitors all cash investments initiated by individuals. Should your cash investments in mutual funds, stocks, bonds, or debentures exceed ₹10 lakh within a financial year, the department may issue a notice requiring an account of the origin of these funds.

The department has established a benchmark of ₹10 lakh for cash investments within these asset categories. In essence, this signifies that any cash investment surpassing ₹10 lakh within these asset categories in a fiscal year will activate an automatic alert for the ITD.

Subsequently, the department will initiate an inquiry into the provenance of the funds utilized for the investment. Should the department deem the explanation satisfactory, no notice will be dispatched. However, if the provided explanation falls short of their standards, the department might formally notify the investor, demanding a clarification regarding the source of the funds.

Cash transaction above ₹30 lakh in real estate

The department advises against engaging in cash transactions exceeding ₹30 lakh within real estate transactions. This precaution is due to the challenges posed by tracking cash transactions, which can potentially facilitate money laundering or tax evasion.

For individuals engaged in property buying or selling, familiarity with the department’s directives concerning cash transactions is crucial. Should you participate in a cash transaction surpassing ₹30 lakh, you could be called upon to elucidate the origin of the funds. Furthermore, the possibility of facing penalties also exists.

Income Tax Notice: Notice can be received even after tax is deducted, this update comes for income taxpayers

A new update has come out for taxpayers from the Income Tax Department. It is being told in the update that in the coming days, notices can soon be sent by the department to many income taxpayers. According to a recent report, the Income Tax Department has made preparations to send the notice.

CBDT Chairman told this
According to an ET report, the department may also send a notice to those taxpayers whose tax has already been deducted. The report quoted Central Board of Direct Taxes (CBDT) Chairman Nitin Gupta as saying that the Income Tax Department is trying to reduce tax-related disputes. Currently, only those taxpayers are going to get notice from Income Tax, about whom the department has some concrete information.

Announcement on tax disputes in the budget
Finance Minister Nirmala Sitharaman had announced a new initiative to reduce tax disputes during the budget presented on February 1 this month. He had said that the arrears of tax demand up to Rs 25 thousand till the financial year 2009-10 will be canceled. Similarly, cases of tax arrears up to Rs 10,000 during the period 2010-11 to 2014-15 will also be settled. He had said that about one crore taxpayers can benefit from this.

Special center has been built in Karnataka
The Income Tax Department has set up a Demand Management Center in Mysore, Karnataka for tax disputes. CBDT Chairman says that earlier the Mysore-based center was handling the cases of Karnataka only, but now the center is taking up the cases of the entire country. This center deals with tax dispute cases of more than Rs 1 crore.

They are going to get notice
In the latest preparation of the Income Tax Department, those taxpayers are going to get notice, whose TDS i.e. Tax Deducted at Source has been deducted, but ITR has not been filed. The deadline for filing income tax returns for assessment year 2023-24 has ended. The deadline for filing ITR was till 31 July 2023. After that the time to fill belated ITR was till 31st December 2023.

Six income tax notices salaried individual can get

Read below to find out what are the different types of income tax notices that you may receive.

1. Section 143 (1) notice: Intimation notice

This notice is sent to an individual after the income tax department processes the ITR. The notice informs an individual whether his ITR calculations match with that of the income tax department. If there is a mismatch, then this intimation notice will inform whether there is a refund due or additional taxes are payable. An individual will get this notice, even if there is no mismatch or error in the ITR.

When can this notice be issued: “The intimation notice under section 143 (1) will be issued within nine months from the end of the financial year in which the ITR is furnished under Section 139 or in response to notice under section 142 (1). For ITR filed for FY 2022-23 (AY 2023-24), the intimation notice will be issued on or before December 31, 2024,” says Manmeet Kaur, Principal Associate, Karanjawala & Co, a Delhi based law firm.

Time limit to respond: If the intimation notice is issued due to a refund or if there is no mismatch between you and the tax department’s calculation, then you do not need to respond. However, if there is a tax demand, the taxpayer is expected to respond within 30 days from the date of issue of intimation notice either agreeing/disagreeing with the adjustment proposed.

Read more at: Income Tax Notice: Know when and to whom the notice of section 143(1) comes, what to do if it comes

2. Section 139(9): Defective ITR

According to Archit Gupta, founder, Clear, a tax filing platform, “Notice under section 139(9) of the Income Tax Act, 1961 is sent when there are some errors in the filed ITR. The tax department will send this tax notice requiring the assessee to correct the errors by filing a revised ITR.”

Some of the common reasons to receive this income tax notice according to Gupta are as follows:

  • Tax exemption on house rent allowance claimed in the ITR but breakup of salary not showing HRA component.
  • TDS on income claimed while filing ITR but the same income is not reported. For example, salary from a previous employer is not reported in the ITR form but TDS has been claimed. Similarly, FD interest not mentioned in the ITR form but TDS has been claimed.

When can this notice be issued: According to Sanjoli Maheshwari, Executive Director, Nangia Andersen India, a business consultancy company, “Income tax notice under section 139(9) may be issued within nine months from the end of the financial year in which the return is filed.” Hence, for ITR filed for FY 2022-23 (AY 2023-24) (due date July 31, 2023), the tax department can issue a notice on or before December 31, 2024.

Time limit to respond: The tax notice will mention the due date by which an individual will have to respond. “Usually, the tax department allows individuals a 15 days’ period to respond,” says Gupta.

3. Section 142: Inquiry before scrutiny assessment

The reason this notice is issued is that the income tax department wants to seek clarification why ITR was not filed, despite the individual earning an income above the basic exemption and evidence of various sources of income being present in AIS, etc.

“Notice under section 142(1) may be issued to the assessee taxpayer requiring him to furnish tax return if no such return has been furnished under section 139(1),” says Dr Suresh Surana, founder, RSM India, a tax, audit and consultancy company.

“Further, such notice may also be issued requiring the assessee to produce accounts or documents required to make an assessment and furnish in writing any information on matters. For instance, a statement of all the assets and liabilities of the assessee,” says Surana.

“An individual will be required to answer all the queries raised by the tax department through notice issued under section 142(1) and provide the requisite details and documents asked in support of the claim made in the ITR filed within the time prescribed in the notice,” says Maheshwari.

When can this notice be issued: “There is no maximum time limit prescribed for issuing a notice under section 142 (1),” said Maheshwari.

Time limit to respond: The time limit for responding to this notice will be mentioned in the notice itself. According to tax experts, the income tax department usually allows 15 days to respond.

4. Section 143 (2): Scrutiny assessment

This income tax notice is sent to the salaried individual to do a detailed assessment of the ITR and confirm the correctness and genuineness of incomes and deductions claimed in the ITR.

“Notice under section 143(2) of the Income Tax Act, 1961 would be issued to the individual for the purpose of making scrutiny assessment under section 143(3),” says Surana.

“Usually, a questionnaire is attached in this type of notice along with the list of documents which is required to be submitted by an individual. Responding to the tax notice is an online process. This scrutiny process will go on till the time the income tax department is satisfied that all its questions have been answered by the individual truthfully and in a satisfactory manner. There is no clear saying when the income tax department will be satisfied.” says Gupta.

When can this notice be issued: According to Maheshwari, in case the ITR has been selected for scrutiny, then notice under section 143(2) can be issued “within three months from the end of the financial year in which the return is filed.” For FY 2022-23 (AY 2023-24), the tax department can send this notice on or before June 30, 2024.

Time limit to respond: The time limit to respond to such notice would be mentioned in the notice itself. All you need to do is submit your “response to the assessing officer by way of uploading the necessary documents,” says Surana.

“Generally, the time limit is 15 days to respond to scrutiny notice,” says Gupta.

Read more at: Section 143(3) Income-tax Scrutiny Assessment

5. Section 148: Income escaping assessment

This tax notice is issued when the assessing officer (AO) has any information which suggests that a certain income of an individual has escaped assessment in the previous year. This means that an individual has not reported certain income in the ITR filed in the previous year.

“Before issuing notice under section 148, the income-tax department will issue a show cause notice to the individual under section 148A(b). This show cause notice is issued to provide reasons why a particular ITR was selected for reassessment,” says Surana.

An opportunity will be given to individuals as to why reassessment proceedings should not be initiated. Based on the information provided by the individual, the assessing officer can either continue with the reassessment proceedings or dispose of the case.

When can this notice be issued: The time period for issuing a notice under this section depends on the amount of income that has escaped from assessment. The tax notice will be issued within 3 years from the end of the relevant assessment year if income is below Rs 50 lakh.

“However, if the income exceeds Rs. 50 lakh the reassessment of the ITR filed can be done up to 10 years from the relevant assessment year with the prior approval of specified tax authority,” says Surana.

For example, if an income has escaped assessment in FY 2016-17 (AY 2017-18) then the income tax department can send notice till FY 2025-26 (AY 2026-27) if the income exceeds Rs. 50 lakhs or more. If escaped income is less than Rs. 50 lakhs, the tax notice can be issued up to FY 2019-20 (AY 2020-21).

Time limit to respond to such notice: The notice will mention the time limit for response. Usually, the tax department allows 30 days to respond to the tax notice.

6. Section 245: Adjustment of tax payable with refund amount

The income tax department has the power to set off income tax refunds due for a particular year against an outstanding demand of previous years. This adjustment only happens if there are outstanding income tax dues or tax refund due in the current year.

“An intimation notice under section 245 may be issued to the taxpayer in case the income tax department intends to adjust current year’s income tax refund with any of the pending tax demand of the taxpayer from the previous years,” says Surana.

If you have any objection to this notice, or you have already paid the outstanding demand, “then the taxpayer should submit a response providing evidence of payment and requesting the department not to make the proposed adjustment,” says Maheshwari.

“An assessee will have outstanding tax dues when he/she has missed the timeline to pay income tax dues. Here an assessee is considered as an assessee in default. As per section 222, tax recovery officers can issue notices to such assessee in default for recovery of unpaid demands. Such recoveries can be made from properties owned by such assessee in default, which may include but not limited to land, building, bank accounts, and income tax refunds too. Section 245 empowers the income tax department to make such recoveries from refund payable to an assessee.

When can this notice be issued: “There is no time limit for issuing this tax notice under section 245. This means that if as per the income tax department, a taxpayer has an outstanding tax demand for FY 1999- 2000 (AY 2000-01), and for FY 2022- 23 (AY 2023-24) has a tax refund due, then tax officer can set off the refund with the outstanding demand,” says Maheshwari.

Time limit to respond: The time limit for responding to this notice will be mentioned in the notice. “Generally, 30 days from the date of issuing the notice is allowed to individuals to respond,” says Surana.

After you have responded to this tax notice, the income tax department will examine the reason for your objection or agreement with the tax demand in the notice.

“The Income Tax Act has specified time limits to issue a specific tax notice. Beyond the specified time limit specific tax notices should not be issued. However, in practical situations individuals get tax notices beyond the expiry of timelines. An individual must verify if the tax notice issuing time limit exceeded or not. It may happen that tax notice was issued before the expiry of the time limit. But it is doubtful if the tax notice was received by the individual on time,” says Aggarwal.

Read more at: Income Tax: How to respond to an intimation under Section 245 of Income Tax Act

Beware of Fake Notice Claiming Payment for Audited Balance Sheet, Income Tax Department issue warning

A fake notice purportedly from the Income Tax Department is claiming that payment is required for an audited balance sheet by February 15, 2024. However, the Press Information Bureau’s Fact Check confirms that no such notice has been issued by the IT Department. It advises verifying any suspicious notification on the official website ‘incometax.gov.in’. The provided image is likely related to this fraudulent notice.

A fake notice issued in name of Income Tax Department claims that payment is required for audited balance sheet upto 15/02/2024

PIB Fact Check

✔️No such notice has been issued by the IT Department

✔️Verify any suspicious notification on official website – ‘incometax.gov.in

Cash transactions are now under strict scrutiny by the Income Tax Department

Cash transactions are now under strict scrutiny by the Income Tax Department. In recent times, the department along with various investment platforms like banks, mutual fund houses, and brokerage platforms, has imposed stricter regulations on cash transactions for the general public. These institutions now have set limits on cash transactions, and anyone exceeding these limits may receive a notice from the department.

The heightened vigilance against cash transactions by the department is part of a broader effort to combat black money and tax evasion. Cash transactions have often been misused to hide illegal income, and by imposing limitations on them, the Department aims to deter tax evasion.

The new regulations on cash transactions have several implications for the general public. Although this may cause some inconvenience, it is essential to recognise that these measures are in place to safeguard the public from financial crimes. If there is a minor violation, the Income Tax Department might issue a notice to the offender.

Engaging in substantial cash transactions could result in an individual receiving a notice from the Income Tax Department. Various cash-related transactions, such as those conducted through banks, mutual fund houses, brokerages, and property registrars, fall under scrutiny. It is mandatory to report high-value transactions to the department if they exceed a certain threshold.

Through agreements with various government agencies, the department has established a robust system for sharing financial information. This collaborative approach empowers the department to track down individuals who participate in substantial cash transactions without disclosing them in their tax filings. These agreements serve as a potent tool for combating tax evasion.

With access to a diverse array of financial data, including bank account records, credit card statements, and investment transactions, the department can effectively identify individuals who may be evading taxes. These comprehensive data sources enhance the Department’s ability to enforce tax compliance.

The cash transactions that may cause you to receive an unwarranted notice from the Income Tax officials include:

Bank fixed deposits

The Central Board of Direct Taxes (CBDT) has mandated that cash deposits in bank fixed deposits should not exceed ₹10 lakh. As part of this announcement, banks are now required to disclose whether individual deposits exceed the specified limit in one or more fixed deposits.

Savings account deposits with banks

Cash deposits in bank accounts are subject to strict limits in India. For savings accounts, the annual cash deposit limit is ₹10 lakh. This means that a savings account holder cannot deposit more than ₹10 lakh in cash in a single financial year. If a savings account holder exceeds this limit, they may receive an income tax notice from the tax department.

Cash deposits in current accounts are subject to a higher limit of ₹50 lakh. However, even current account holders should be aware of the cash deposit limits, as any cash deposits or withdrawals that surpass the ₹10 lakh limit in a financial year must be reported to the tax authorities.

Paying off credit card bills

The Central Board of Direct Taxes (CBDT) has implemented stringent guidelines concerning cash payments for credit card bills. Any cash payment of ₹1 lakh or more against credit card bills must be promptly reported to the tax department. Moreover, individuals who make cash payments of ₹10 lakh or more to settle credit card bills within a financial year are required to disclose such transactions to the tax department.

These regulations have a broad scope and apply to all individuals, irrespective of their income or tax status. Enforced by the income tax department, non-compliance with these rules can lead to penalties.

The primary objective behind these rules is to combat money laundering and tax evasion. By compelling individuals to report significant cash payments for credit card bills, the government aims to make it challenging for criminals to disguise their illicit activities. These rules not only serve as a deterrent against financial wrongdoing but also assist in identifying individuals who may be facing difficulties in managing their credit card payments.

If you are considering making a substantial cash payment to settle a credit card bill, it is crucial to be aware of CBDT’s regulations. To comply with the requirements, individuals can report such transactions by filing Form 61A with the Income Tax Department. Staying informed and adhering to these guidelines will help foster a transparent financial system while curbing illicit practices.

It is essential to disclose any significant transactions when filing your Income Tax Return (ITR). If you have engaged in high-value transactions using credit cards, remember to report them on Form 26AS while filing your ITR to avoid getting an income tax notice.

Transactions surrounding real estate sales or purchases

In India, property registrars are obligated to notify the tax authorities of any immovable property investments or sales amounting to ₹30 lakh or more. This means that whether you pay for the property in cash or through other means, if the transaction exceeds ₹30 lakh, the property registrar will send a report to the tax authorities.

The primary purpose of this reporting requirement is to enable the tax authorities to identify individuals who may be evading taxes on their real estate transactions. If you have intentions to buy or sell a property valued at more than ₹30 lakh, it is crucial to be aware of this reporting obligation. To ensure compliance, it is advisable to report any cash transactions related to the property in Form 26AS while adhering to the tax regulations. This will help you stay by the law and avoid potential complications with the tax authorities.

Shares, mutual funds, debentures, and bonds investments

Investors who engage in mutual funds, stocks, bonds, or debentures must be mindful of the cash transaction limits. The maximum cash amount that can be invested in these assets during a financial year is ₹10 lakh. Exceeding this limit could lead to an investigation by the tax department.

To track high-value cash transactions, the authorities have introduced an Annual Information Return (AIR) statement. This statement encompasses all financial transactions an individual undertakes in a financial year, including investments in mutual funds, stocks, bonds, and debentures.

In cases where an investor makes a cash investment in these assets surpassing ₹10 lakh, the transaction details will be reported to the tax department. Subsequently, tax officials will scrutinise the transaction to ensure compliance with the law.

Being well-informed about the cash transaction limits and accurately reporting all financial transactions is crucial for investors. By doing so, they can contribute to the prevention of money laundering and tax evasion, thus avoiding potential investigations by authorities.

It is crucial to understand that if investigated by the tax department, investors may face penalties or even criminal prosecution.

The AIR statement serves as a potent tool for the tax department to identify individuals evading taxes, making adherence to the law essential to maintain financial integrity and compliance.

The due date for filing the ITR is getting closer with each passing day. As per a statement issued recently by the Ministry of Finance, over 70 percent of taxpayers have zero tax liability while more than two crore people have already filed their ITRs to date.

Homebuyers Facing TDS Shortfall Notices After Property Purchases

Many homebuyers who purchased properties between July 1, 2023, and January 10, 2024, have been served with a TDS shortfall notice due to sellers’ inoperative PAN. A writ petition has been filed in the Delhi High Court.

Vishal Verma, 38, an information technology sector professional from Bengaluru, bought land in his home town for Rs 2 crore on July 31, 2023. On August 4, 2023, Verma got the shock of his life when he received a TDS (tax deducted at source) shortfall notice to the tune of Rs 38 lakh from the Income Tax Department.

“Being a salaried employee, by no imagination I will be able to arrange this much money to pay TDS. It’s been 7 months since I got the notice and I am yet to have the courage to tell this bad news to my family members, I don’t want them to go into the depression that I am already dealing with,” said Verma.

Verma’s situation is not unique; there are numerous others across the country who have received TDS short notices after purchasing properties between July 1st 2023 and January 10th 2024.

In January, Moneycontrol reported how several homebuyers have been getting tax notices about TDS shortfall.

On February 8, a writ petition filed by a diverse group of 60 homebuyers from across India seeking relief from the higher TDS (Tax Deduction at Source) imposed by the Income-Tax (I-T) department, through their TDS short notices will be heard by the Delhi High Court.

What is a TDS short notice? A TDS short notice is issued when the individual responsible for deducting TDS applies a lower rate than what is stipulated in the income tax regulations. According to the rules, if a person (deductor) is obligated to make a payment to another person (deductee), they must deduct TDS and transfer the remaining balance to the deductee. The deducted TDS amount should then be remitted to the government. Different TDS rates apply to various types of payments. For property purchases, TDS should be levied at a rate of 1 percent of the property value if it exceeds Rs 50 lakh. In the absence of a PAN or if the PAN is inoperative, the TDS rate increases to 20 percent.

The current issue The issue leading to many homebuyers receiving TDS short notices stems from sellers whose PANs were inoperative due to not being linked to Aadhaar. Unfortunately, homebuyers had no means of verifying whether the PAN was linked to Aadhaar. Even if they had identified an inoperative PAN and tried to apply a 20 percent TDS rate, they were unable to do so because the income tax portal calculates the TDS rate by default, and the payer lacks the authority to adjust the TDS rate.

Similar to Verma, another homebuyer, Samuel Joseph David from Tiruchirappalli bought a house valued at Rs 55 lakh, only to be hit with a tax notice of over Rs 11 lakh shortly afterwards. “I bought this property considering my children’s future. I liquidated all my savings and borrowed money from my relatives. Our happiness didn’t last long. Two weeks after our registration, I received a demand notice for Rs 11 Lakh plus 1.5 percent interest per month. It was a shock for us. We did not use any third-party application to pay the TDS. We paid through the official income tax website believing that information on their website is up to date,” said Samuel.

Similarly, a senior citizen Rakesh Bansal and his daughter from Lucknow also received a tax notice of Rs 11.5 lakh approximately after he bought a house valued around Rs 60 lakh to gift it to his daughter. “I’m a 70-year-old senior citizen suffering from heart and other diseases. I bought a home for my daughter and now, I’m running pillar to post, writing emails to CBDT, Finance Minister and other officials. I even wrote to the PMO for help, unfortunately, I’m still waiting for a resolution,” said Bansal.

The cumulative TDS short notice amount for the group of homebuyers mentioned above alone exceeds Rs 10 crore. The majority of them made their property purchases between July 1, 2023, and January 10, 2024

Income Tax portal not updated till January 10, 2024 The deadline for linking the 12-digit Aadhaar number with the PAN card expired on June 30, 2023. Any PAN cards not linked by this date became inoperative from July 1, 2023. According to CBDT Notification No.15/2023 dated March 28, 2023, the IT portal was expected to be updated with new rules; however, no updates were made until January 10, 2024.

On or after July 1, 2023, when home buyers logged into the IT portal to make TDS payments related to property purchases, the TDS portal did not flag the PAN status. The tax portal calculated TDS at the rate of 1 percent, the homebuyers paid just that and thought their job was done. The official webpage on the Income Tax website does not provide any information about validating PAN status before making TDS payments.

I-T Department’s response failed to provide respite to homebuyers Homebuyers’ complaints to the I-T Department and Centralized Public Grievance Redress and Monitoring System (CPGRAMS) regarding these issues resulted in standard responses without any tangible resolutions.

Homebuyers who spoke to Moneycontrol say that the response is largely standardised and looks like a template. It states: “Your query has been analyzed. It is to inform that the default in the case has been computed by CPC-TDS as per the provisions of CBDT Notification No. 15/2023 dated March 28, 2023. The provisions of Notification No. 15/2023 are applicable based on the status of PAN on the date of the transaction. Kindly refer to CBDT Notification No.15/2023 dated March 28, 2023, for details.”

Following several complaints from aggrieved homebuyers and taxpayers, Moneycontrol has learnt that the I-T Department had sent an internal memorandum from the TPL section to The Under Secretary (ITA)-I, CBDT on January 1, 2024, to address the issue. This shows that the tax department has recognised the issue.

Subsequently, on January 10, 2024, the tax department implemented changes in the TDS portal and included a standard warning message on the TDS payment portal. The warning states, “Please note that if the seller’s PAN is inoperative, then a higher rate of TDS will be deductible in accordance with section 206AA of the Income-tax Act, 1961, read with CBDT Notification No. 15 of 2023 dated March 28, 2023, and Circular No.3 of 2023 dated March 28, 2023. Please make sure to mention the correct amount of TDS.”

Following the portal update (effective January 10 onwards), the TDS amount is no longer automatically calculated by the portal. Instead, an editable field is provided, allowing the buyer to input the correct TDS rate, and the amount is calculated accordingly.

However, the issue persists for homebuyers who have received TDS short notices, with no clarification or acknowledgement of mistakes from the department.

Filing the writ petition With chartered accountants and tax experts offering no solutions and lukewarm responses from the I-T Department, homebuyers had only one recourse left: filing a writ petition in the Delhi High Court, legal experts say.

Meanwhile, the distress continues for homebuyers given that they did not benefit by paying a lower TDS, in the first place, and fraud here wasn’t an intention. And especially so, since it is the seller’s (of the property) fault who failed to link their PAN card so far.

Taxpayers have come under Radar of the income tax authorities to prevent leakage of taxes

Income tax notices sent out for overseas investments: Foreign investments of Indian residents have come under the radar of the income tax authorities to prevent leakage of taxes. However, recently even those who have declared overseas assets in their Income Tax Returns (ITRs) have received notices due to a mismatch between the information available with the tax department and ITRs. 

Many taxpayers, who have adhered to the norms by diligently declaring their overseas investments in their income tax returns, are bewildered on receiving the tax notices. It not only creates undue mental pressure but also leads to wastage of time and resources, with individuals having to engage in correspondence and coordination with the Income Tax department to rectify the issue for no non-disclosure on their part,” said Bijal Ajinkya, Partner, Khaitan & Co.

Investments abroad by resident Indians are made through Liberalised Remittance  (LRS) introduced by the Reserve Bank of India. It permits Indian residents to freely remit up to $250,000 per financial year for any investments or payments done abroad. Any income earned from these investments becomes taxable under the Income Tax Act and needs to be declared in the tax return.

The current system of tax department may not cover whole landscape of possibilities of mismatch between the information available with the tax department and ITRs. Like, there could be a possibility that the individuals may have made investment in 2000 or 2010 and the tax department data does not have any data about such investment. However, under the Information Exchange Agreement, they may have received information about such investments,” said Amit Singhania, Founder of Areete Law Offices.

It may also be noted that earlier in 2000 or 2010, there was no requirement to disclose offshore assets. Another example could be a person has made the investment in offshore entity and thereafter gifted the same to his relatives. Thats the reason he has not disclosed the information in ITR. Separately, there is still a possibility that the even though the information regarding investment and ITR are matched but the tax department may have suspicion regarding bonafide source of funds considering the quantum of income disclosed in ITR, explained Singhania.

However, discrepancies in the information mapping system of the Income Tax department have led to the present scenario where even some compliant taxpayers are receiving tax notices.  The current issue emphasizes the urgent requirement for streamlining the information management system of the Income Tax Department. The tax authorities must ensure accurate mapping and integration of data declared by taxpayers and that received from international agencies. This would not only help in avoiding unnecessary harassment of tax-compliant individuals but also aid in the accurate identification of those flouting tax norms, added Ajinkya.

Govt sends targeted mails to 4.4 million taxpayers over large discrepancies

The government sent about 4.4 million “targeted” emails to people who had “wide gaps” in the transactions on their accounts and the income they disclosed during last year’s tax filing cycle

The government sent about 4.4 million “targeted” emails to people who had “wide gaps” in the transactions on their accounts and the income they disclosed during last year’s tax filing cycle, a senior official has said, the first time the income tax department delivered forewarnings to help people avoid being sent a tax notice.

The email were sent over the tax returns filed during the 2023-24 assessment year, which pertained to people’s incomes in the 2022-23 financial year.

“These emails are targeted at large discrepancies and not small ones,” Central Board of Direct Taxes (CBDT) chairman Nitin Gupta said.

The email has a simple message pointing out that the taxpayer’s income as shown in his or her return is not commensurate with the return income filed with the income tax department, hence the assessee needs to file a revised return, Gupta said. CBDT, an arm of the Union finance ministry, is responsible for administration of direct taxes, including the income tax.

The first deadline to file a return is usually July 31 and people have time to file revised returns till December 31. Those who missed filing their original returns by July 31 could also do so by December 31 by paying a penalty of up to ₹5,000.

According to experts, a tax notice is more stringent and may lead to a scrutiny and penalties calculated as a proportion of the pending due.

Gupta described the email cautioning system as in step with the government’s ‘ease of doing business’ and ‘ease of living’ initiatives. He said the department is lenient on unintended lapses by taxpayers and prompts them regarding unintentional omissions of any income while reporting to the department.

The chairman said there are also cases of non-compliance due to lack of awareness, but there are other types of cases, which are deliberate and fall in the category of tax evasion.

On cases where people do not disclose their income deliberately, there is “enforcement actions we do take, which are giving us good results”, Gupta said.

The e-mails, he explained, were for a third category.

“There is one more category, which is slightly different from these two, is that the taxpayer is filing return, but income therein is not commensurate to the financial transactions the taxpayer has undertaken. For example, purchase of a property, financial transactions of securities or mutual funds. For such cases, we are also applying two methodologies, one is, e-verification scheme. Where, for the old cases, we put the differential… and request him to give explanation/response to that,” he said adding that extreme cases could be picked up for scrutiny.

“We sent out targeted e-mails for the assessment year 2023-24, before the last date for filing the revised returns, so that the tax payers could file revised returns.”

Gupta said ease of compliance and use of technology have made the taxation system transparent and efficient, and has checked evasions significantly, which helped the government mop up high direct tax revenue.

Robust tax collections prompted the finance minister to raise CBDT’s target from ₹18,23,250 crore ( ₹9,22,675 crore in corporate income tax or CIT, and ₹9,00,575 crore personal income tax or PIT) in 2023-24 BE (budget estimate) to ₹19,45,000 crore in 2023-24 RE ( ₹9,22,675 crore CIT and ₹10,22,325 crore PIT).

“We will try to achieve the RE (revised estimate) target as we still have two more months. We don’t know what will be the inflow of advance tax or TDS [tax deducted at source], but we will make an endeavour to achieve this it is achievable,” Gupta said.

He is also confident about the next financial year (FY25), where the BE target for CIT is ₹10,42,830 crore and PIT is ₹11,56,000 crore. The total ₹21,98,830 crore in BE of FY25 is 13% higher than RE 2023-24 and over 20.5% more as compared to BE of FY24.

“It is realistic and achievable,” Gupta said while pointing at robust GDP growth. Despite global headwinds such as conflicts in Ukraine and Gaza and the Red Sea trade disruption, India’s first advance estimates of growth released on January 5 projected a higher-than-expected GDP growth of 7.3% in FY24. A finance ministry report released two days before the interim budget said India will remain fastest growing major economy in 2024-25 with real GDP growth likely be closer to 7%.

Income Tax Department big Update! TDS deducted, but not filed ITRs? You may soon get income tax notice

The Income Tax Department will soon send notices to individuals who have not filed income tax returns (ITRs). The notices will be sent to even those whose income tax has been deducted at source, The Economic Times reported on Sunday.   

Central Board of Direct Taxes (CBDT) chairman Nitin Gupta said that the department will be sending notices to only those taxpayers for which it had definitive information. He said the department’s focus was on improving taxpayer services, from bringing down the period of refund to updated returns or solving a large tax dispute.

The CBDT has set up a demand management centre at Mysuru that’s focussing on tax disputes above Rs 1 crore, the chairman said. “At the particular point of time agreed upon by the taxpayers, they put together a chartered accountant, the assessing officials, and the taxpayers who try to resolve and reach agreement on assessment from both sides,” he was quoted as saying. 

Gupta said that the centre was earlier confining itself to Karnataka disputes but now it was picking up cases from across India.

In the Interim Budget 2024, Finance Minister Nirmala Sitharaman announced the withdrawal of outstanding tax demands upto Rs 25,000. She said there were a large number of petty, non-verified, non-reconciled or disputed direct tax demands, many of them dating as far back as the year 1962, which continued to remain on the books, causing anxiety to honest taxpayers and hindering refunds of subsequent years.   “I propose to withdraw such outstanding direct tax demands up to Rs 25,000 pertaining to the period up to financial year 2009-10 and up to Rs 10,000 for financial years 2010-11 to 2014-15. This is expected to benefit about a crore tax-payers,” she said. 

Income Tax Department to Send Notices to Non-Filers Despite Source Deductions

The income tax department plans to send notices to taxpayers who have not filed tax returns despite tax deductions at source. The Central Board of Direct Taxes (CBDT) chairman, Nitin Gupta, stated that the department will send notices to individuals for whom they have definitive information, and the number of notices is expected to be in the few thousand.

The department is utilizing vast amounts of data to identify discrepancies and is urging taxpayers to update their returns. So far, the CBDT has collected ₹4,600 crore from 5.1 million updated returns. Efforts are being made to enhance taxpayer services, such as reducing refund time and resolving significant tax disputes. Additionally, a demand management center has been established in Mysuru, Karnataka, focusing on tax disputes over ₹1 crore. The CBDT is also planning to issue a detailed circular to implement the budget announcement on withdrawing outstanding small tax demands up to ₹25,000 until FY15. Currently, 60% of taxpayers have transitioned to the new tax regime introduced in the February 2022 budget.

Read more at: Income Tax Department sends 100,000 notices

The department intends to evaluate the response and filing patterns before considering any rate adjustments. Moreover, additional disclosures are being requested in income tax returns, largely stemming from recommendations by the Public Accounts Committee or the Election Commission of India. This includes details like the Legal Entity Identifier (LEI), contributions to political parties, and deductions for the maintenance of dependents with disabilities, among other information.

Read more at: Income Tax Notices: Taxpayers Alert! Income Tax Department is sending notices in cases up to 15 years old; Know the reason

DFC directly contacts taxpayers, receiving Income Tax notice under Section 245

Income Tax Department’s DFC Can Help Address Issues With Older Outstanding Taxes

While not many taxpayers might be aware of the fact, it should be noted that the income tax department can deduct an old tax demand from the current year’s tax return under Section 245 of the Income Tax Act 1961. In such cases, the I-T department can send Section 245 notice, pertaining to the past year’s details of the older tax demands. The problem here basically occurs as individuals usually don’t remember such old data and thus struggle to adjust their outstanding dues with the present income tax refund. To help solve the issue and address the same, the Income Tax Department recently launched the Demand Facilitation Centre (DFC) in a few states.

With an aim to assist individuals facing challenges with older tax return data, the DFC serves as a resource to help resolve any outstanding dues by utilising the current year’s income tax refund. Besides that, the initiative also seeks to address the common issue of individuals receiving Section 245 notice for long-forgotten tax returns.

If you have also received notice under Section 245 and require assistance from DFC, scroll further to understand the concepts in more detail.

About Section 245 and DFC

Section 245 empowers the income tax department to adjust past years’ outstanding income tax dues with the present year’s income tax refund of the taxpayers.

This is when the DFC steps in to help individuals struggling with recalling details from older returns. Presently, the DFC is operational in states including Karnataka, Punjab, Haryana, Himachal Pradesh, Tamil Nadu, Chandigarh, Delhi, Mumbai, and others.

Conditions when DFC can help

1. Apparent mistakes from the record: Taxpayers can seek help from DFC when there are apparent mistakes in records. For instance, discrepancies in challan numbers during ITR filing or incorrect TDS amounts due to banking errors can be addressed with DFC.

Conditions when DFC can help

1. Apparent mistakes from the record: Taxpayers can seek help from DFC when there are apparent mistakes in records. For instance, discrepancies in challan numbers during ITR filing or incorrect TDS amounts due to banking errors can be addressed with DFC.

2. Rectification rights are with the CPC: If the Section 245 income tax demand notice indicates ‘rectification rights’ with the Centralised Processing Centre, they can seek assistance. However, if the rectification right is with the Assessing Officer (AO), they must approach the AO directly.

How to approach DFC?

Upon receiving the Section 245 tax demand notice, taxpayers might receive a call or mail from DFC. Officials can contact you through the number (+91 8216671200) or send an email from the ID (taxdemand@cpc.incometax.gov.in).

On the other hand, individuals can reach out through the toll-free number 1800 309 0130. It is to be noted that DFC does not seek their ITR-filing personal login credentials, banking passwords, or OTPs.

Easing Tax Burden: Finance Minister’s New Direct Tax big Announcement

The Finance Minister announced the withdrawal of all disputed direct tax demands up to Rs 25,000 until FY 2014-15 to improve taxpayer services and ease their burden. This move is expected to benefit around 1 crore taxpayers. The proposal aims to alleviate concerns regarding the significant backlog of tax dispute resolution and foster a more conducive environment for compliance and economic growth. Additionally, the budget highlights achievements in processing tax returns, with the average processing time reduced from 93 days in 2013-14 to just 10 days, ensuring faster refunds and an enhanced taxpayer experience.

It is important to note that an individual can receive outstanding tax demand notices under various sections of the Income-tax Act, 1961. Salaried individuals typically receive six types of tax notices, including sections 143(1), 139(9), 142, 143(2), 148, and 245. Section 143(1) notice is issued when tax demand is payable after the income tax return is processed by the CPC. Section 139(9) notice is sent when an individual files a defective income tax return, which may involve using the wrong ITR form or other filing errors.

Cash Deposit Limit for a Savings Account as Per Income Tax Act

The cash deposit limit in savings accounts refers to the maximum amount of cash that an individual can deposit within a specified period without attracting the attention of tax authorities. This limit is set by income tax regulations to monitor and regulate the flow of cash transactions, curbing the potential for money laundering, tax evasion, and other illicit financial activities.

As per the provisions outlined in the Indian Income Tax Act, there are specific regulations concerning cash transactions, including significant cash deposits. Individuals who deposit cash into a savings account and accumulate INR 10 lakh or more during a fiscal year are required to notify the tax authorities. For those holding current accounts, this reporting threshold is elevated to INR 50 lakh.

It’s essential to recognize that although these deposits aren’t subject to immediate taxation, financial institutions are obligated to report transactions that exceed these limits to the Income Tax Department.

Section 194N

Turning to cash withdrawals, the rules for tax deducted at source (TDS) are outlined in Section 194N of the Indian Income Tax Act. The law dictates that withdrawals exceeding INR 1 crore within a fiscal year incur a 2% TDS. For individuals who haven’t filed their income tax returns for the past three years, a 2% TDS applies to cash withdrawals exceeding INR 20 lakh, while a 5% TDS applies to amounts withdrawn above INR 1 cr in the same financial year.

It’s noteworthy that the TDS deducted under Section 194N isn’t categorized as income but can be utilized as a credit when filing income tax returns (ITR).

Section 269ST 

Section 269ST of the Income Tax Act stipulates penalties for individuals who receive INR 2 lakh or more in cash within a specific year or transaction. However, this penalty does not apply to bank withdrawals, although TDS deductions are applicable to withdrawals that surpass the established limits.

269SS and 269T

The regulations set forth in Sections 269SS and 269T of the Income Tax Act pertain to cash loans. Accepting or repaying cash loans exceeding INR 20,000 in a given year might lead to penalties equivalent to the cash loan amount.

It’s prudent to stay updated with the latest income tax regulations and guidelines to ensure compliance and proper handling of cash transactions within the framework of the law.

How is the Cash Deposited in a Bank Account Taxed?

As per the provisions outlined in the Indian Income Tax Act, there are specific regulations concerning cash transactions, including significant cash deposits. Individuals who deposit cash into a savings account and accumulate INR 10 lakh or more during a fiscal year are required to notify the tax authorities. For those holding current accounts, this reporting threshold is elevated to INR 50 lakh. It’s essential to recognize that although these deposits aren’t subject to immediate taxation, financial institutions are obligated to report transactions that exceed these limits to the Income Tax Department.

Turning to cash withdrawals, the rules for TDS are outlined in Section 194N of the Indian Income Tax Act. The law dictates that withdrawals exceeding INR 1 crore within a fiscal year incur a 2% TDS. For individuals who haven’t filed their income tax returns for the past three years, a 2% TDS applies to cash withdrawals exceeding INR 20 lakh, while a 5% TDS applies to amounts withdrawn above INR 1 crore in the same financial year.

It’s noteworthy that the TDS deducted under Section 194N isn’t categorized as income but can be utilized as a credit when filing ITR.

44AD/44ADA

In a business context, deposits that align with the business turnover declared in the income tax return, particularly those under Sections 44AD/44ADA, are exempt from penalties. Conversely, deposits that are unrelated to business operations might attract the attention of the tax department.

The Income Tax Department holds the authority to issue notices under Section 68 of the Income Tax Act when individuals are unable to authenticate the source of their income. In cases where the income source remains unverified, a 60% tax, along with a 25% surcharge and a 4% cess, is imposed.

Additionally, Section 269ST of the Income Tax Act stipulates penalties for individuals who receive INR 2 lakh or more in cash within a specific year or transaction. However, this penalty does not apply to bank withdrawals, although TDS deductions are applicable to withdrawals that surpass the established limits.

The regulations set forth in Sections 269SS and 269T of the Income Tax Act pertain to cash loans. Accepting or repaying cash loans exceeding INR 20,000 in a given year might lead to penalties equivalent to the cash loan amount.

It’s prudent to stay updated with the latest income tax regulations and guidelines to ensure compliance and proper handling of cash transactions within the framework of the law.

Other Cash Transaction Limits

Following are some of the other kinds of transactions prevalent in the banking sector: 

Cash deposit limit in Current Account

For current accounts, which are primarily used by businesses and enterprises for daily transactions, the cash deposit limit is often higher compared to savings accounts. This is because businesses deal with larger volumes of cash due to their operational nature. 

However, specific limits can vary depending on the bank and the business’s financial activities. For example, the cash deposit limit in SBI for current accounts is 5 lakh to INR 100 crore per month. In HDFC it is 60 lakh or ten times the value of the current monthly balance (AMB), after crossing this limit the bank may charge some interest from the depositor. 

Cash Transaction Limit

Apart from cash deposits, there are also cash transaction limits in place to regulate other types of financial activities. These limits are designed to track and monitor transactions that involve substantial amounts of cash. These transactions can include cash withdrawals, transfers, and payments. Cash transactions are restricted by Section 269ST and can only be up to INR 2 Lakh per day. All the banks have cash transactions below this value.

Cash Withdrawal Limit

Cash withdrawal limits exist to ensure that large cash withdrawals are reported to the relevant authorities. While these limits can vary between banks and account types, they are generally put in place to prevent illegal activities such as money laundering and tax evasion.

Should an individual possess three distinct bank accounts across three separate banks, they could potentially withdraw a cumulative amount of INR 1 crore from each bank, summing up to a total withdrawal of INR 3 crore, without incurring any TDS implications.

Cash Gift Limit

Income tax regulations also dictate the limit on cash gifts that can be given without incurring taxation. This is to prevent individuals from using cash gifts to evade taxes by disguising taxable income as gifts.

As per the existing tax regulations, not all gifts received within India are liable for taxation. The Income Tax Act of 1961 encompasses crucial provisions that facilitate the receipt of several gifts that are exempt from taxation.

For instance, if you happen to receive gifts or monetary funds amounting to INR 50,000 or less in a single financial year, you are not obliged to remit any gift tax.

Similarly, when you receive presents from sources such as your parents, spouse, siblings, or other immediate relatives including your in-laws, you are relieved from any tax obligations. This exemption from gift taxation remains applicable regardless of the value of the gifts received.

Fixed Deposit Limit

Fixed deposits, a popular investment option, also have specific rules regarding cash deposits. These rules dictate the maximum amount that can be deposited in a fixed deposit account, ensuring transparency and compliance.

Tax-saving fixed deposits offer a versatile investment opportunity with a minimum entry threshold of INR 100. On the upper end of the spectrum, investors can allocate up to INR 1.5 lakh per financial year into such deposits, thereby capitalizing on potential tax benefits.

Credit Card Bill Payment Limit

For credit card bill payments made in cash, there might be limitations in place to prevent the use of cash payments for settling extremely high credit card bills.

For Credit Card (VISA) bill payments through SBI, the prescribed per diem limit stands at INR 50,000, with an accompanying per transaction cap of INR 25,000, and HDFC is INR 49,000. The bill payment limit is more or less the same for all the banks.

Real Estate Transactions Limit

In real estate transactions, especially property purchases, cash is sometimes used for under-the-table deals. To counter this, there are limits on the amount of cash that can be transacted in real estate deals, ensuring that such transactions are properly documented and taxed.

In India, cash transactions related to real estate purchases are subject to strict regulations and limitations as part of the government’s efforts to curb black money and promote transparency in the real estate sector. The government has set a cash transaction limit for real estate transactions, beyond which the use of cash is prohibited. 

It is Not Permissible to Purchase a Flat Using Full Cash

The acquisition of a flat or any property using full cash is not permissible. Real estate transactions are bound by a cash transaction limit, and any transaction exceeding INR 20,000 in cash cannot be executed. As per Section 269SS of the Income Tax Act, receiving payments exceeding INR 20,000 in cash renders the seller liable for a penalty fee of 100%. This regulation, instituted by the Central Board of Direct Taxes (CBDT), has been in effect since June 1, 2015.

It is Acceptable to Record Cash Payments in the Sale Deed

Indeed, you can document cash payments as transaction evidence in the registered title deed. Nonetheless, it is crucial to ensure that any cash payment does not surpass the limit of INR 20,000.

Always bear in mind the stipulated cash transaction limit for property acquisitions and tailor your investment strategy accordingly.

Bottom Line

Navigating the landscape of cash deposits and transactions within the bounds of income tax regulations is paramount for maintaining financial legality and transparency. By understanding the cash deposit limits in savings accounts and other related regulations, individuals and businesses can avoid unnecessary legal troubles and contribute to a more transparent financial ecosystem

Notice under Section 142(1) of Income Tax Act is generally served to taxpayers in order to call upon certain documents and details or to particularly assess a case

Section 142(1) of Income Tax Act: A notice under Section 142(1) of Income Tax Act is generally served to taxpayers in order to call upon certain documents and details or to particularly assess a case. When an individual receives a notice under this section, it is most commonly the first step in the preliminary investigation into any discrepancies found by an Assessing Officer who would require the taxpayer to furnish further proofs or details. This notice could be sent to an assessee before or after the assessment of their tax return. Taxpayers should keep in mind the fact that it is not wise to ignore notices received from the Income Tax Department.

The notice could be addressed to the assessee when the return has already been filed, and additional details and documents are required from the assessee to complete the process. The taxpayer would then be given time for the submission of the required documents and a proper chance of being heard before concluding the process. The present article provides an insight into the aspects which one has to keep in mind when a taxpayer receives a notice under Section 142(1) of the Income Tax Act.

Objective of the Notice

The following could be the objectives of serving a notice under Section 142(1) by the Assessing Officer:

  • To furnish a return of income with respect to which an individual is assessable, where they have not filed their return of income within the reasonable time allowed (which may include return in regard to their own income or income of another individual for which they are liable to be assessable), for example, in the case of a legal guardian or deceased person.
  • To produce documents or accounts which the Assessing Officer may require to make an accurate assessment.
  • To furnish information in writing on matters including the assessee’s statements, for instance, an account of their assets and liabilities for a particular date.
  • To be compliant with the notice under Section 142(1) is deemed mandatory.

Procedure for Issuing Notice

  • Prior to the execution of a scrutiny assessment, a notice under Section 142(1) of Income Tax Act would be sent to the taxpayer. The purpose of the notice is to enquire about the submission or to produce certain documents, information or records that the Assessing Officer finds necessary to make an accurate assessment of income of the taxpayer.
  • In order to facilitate e-assessment proceedings, the Income Tax Department had issued a revised format for all the notices under Section 143(2). However, until recently, all the notices under Section 142(1) were majorly sent by regular mail. On February 2018, the Central Board of Direct Taxes (CBDT) declared that all the pending scrutiny assessments would be carried out through an online method exclusively.
  • Further, search related evaluations, and any other existing pending scrutiny assessments would be an exception under this declaration. Eventually, the CBDT also issued that there would be a new format for sending out notices under Section 142(1) and the same would be used in all e-proceeding cases.
  • As a result of these notifications, the notices for Inquiry Before Assessment under Section 142(1) would be issued in an electronic format by delivering the same to the e-filing account of the taxpayer along with an intimation via E-mail and SMS.
  • For cases where a notice under Section 142(1) was already issued to a taxpayer in the past in the outdated format, then an intimation via SMS or E-mail would be initiated to inform them about the new procedure for submitting the required proofs or documents on the official e-filing website.

Key Notes of Online Submission

The following key points must be kept in mind during online submission of response to an Income Tax notice:

  • The taxpayer would receive the notice under Section 142(1) in their e-filing account on the e-filing portal.
  • The Assessing Officer would sign all the notices or communications with the help of Digital Signatures.
  • The documents or proofs that were mentioned in the Income Tax notice issued by the Assessing Officer must be submitted before the end of the working hours on the issued deadline for submission.
  • The facility for submission of requested documents would be closed in seven days after the completion of the proceedings unless in the case of an extension in extraordinary circumstances.
  • Manual submission of documents would be granted in rare circumstances such as:
    • To examine the books of accounts.
    • When third party investigated are required to be carried out.
    • To examine the witnesses.
    • To hold a personal hearing that was requested by the taxpayer in order to explain their case or situation.

Consequences of ignoring the Notice

  • If a taxpayer who receives the notice under Section 142(1) does not respond to the same in the given time, the Assessing Officer would make the adjustments according to the details available to the Officer and would move to close the assessment.
  • The taxpayer would have no further opportunity to refuse the Assessing Officer’s judgement except through an appeal under Section 246 of Income Tax Act, as a result of failure to respond to the notice and to furnish the proof requested on time.
  • However, the Assessing Officer has the power to treat the ignorance of response as a willful failure to respond and may levy a penalty under Section 272A of INR 10,000 per failure. The penalty will be levied on the taxpayer if they fail to comply with any notice issued under Section 142(1), Section 143(2) or a direction under Section 142(2A).

Income Tax Department takes cognizance of certain high-value transactions that could land you in the legal net if ignored

Income Tax notice: 6 high-value cash transactions that can get you flagged by Income Tax Department: The Income Tax Department takes cognizance of certain high-value transactions that could land you in the legal net if ignored. To prevent tax evasion and money laundering, tax authorities closely monitor a variety of cash-related transactions. Financial institutions, including banks, mutual fund companies, brokerages, and property registrars, have an obligation to report cash transactions exceeding a specific threshold to the tax department. Below are several cash transactions subject to vigilant monitoring by tax authorities:

Acquisition of real estate assets

In accordance with Section 12 of the Prevention of Money Laundering Act, 2002 (PMLA), property registrars are mandated to notify tax authorities about any acquisitions or sales of immovable properties valued at ₹30 lakh or higher. This notification must be submitted within 30 days from the date of property registration. The property registrar must furnish the following details to the tax authorities:

This data is utilized by tax authorities to monitor substantial cash transactions and identify potential instances of tax evasion and money laundering. The property registrar must report all transactions involving the purchase and sale of immovable property valued at ₹30 lakh or higher, irrespective of whether the payment is made in cash or by cheque.

Acquisition of stocks, mutual funds, debentures, and bonds

Companies or institutions that issue bonds or debentures must compulsorily report any receipt of ₹10 lakh or more from an individual during a financial year for the acquisition of bonds or debentures. This reporting measure is implemented to prevent tax evasion and money laundering.

Likewise, companies that issue shares must report any receipt of ₹10 lakh or more from an individual within a financial year for the acquisition of shares. This reporting obligation also extends to the purchase of mutual funds.

The company or institution must provide the following information to the Income Tax Department:

  • Investor’s name and address
  • Investor’s PAN number, if provided
  • Purchase date
  • Purchase amount
  • Type of security acquired (e.g., bond, debenture, share, mutual fund unit).

This data enables the Income Tax Department to identify taxpayers who may not be disclosing their complete income or who are engaging in suspicious investment activities.

The reporting mandate is applicable to investments made by individuals, Hindu Undivided Families (HUFs), and partnership firms, and it does not extend to investments made by companies.

Acquisition of foreign currency

Any purchase of foreign exchange amounting to ₹10 lakh or more during a financial year must be reported to the Income Tax Department. This reporting obligation is applicable to individuals, HUFs, and partnership firms, but it does not pertain to companies.

The subsequent foreign exchange transactions must be reported to the Income Tax Department:

The establishment that supplies you with foreign exchange is obligated to notify the Income Tax Department of the transaction. For instance, if you buy foreign currency notes and coins from a bank, the bank must report the transaction to the Income Tax Department.

This reporting mandate is implemented to deter tax evasion and money laundering. The Income Tax Department can utilize the provided information to identify taxpayers who are either underreporting their complete income or engaging in questionable foreign exchange transactions.

Cash deposits in bank accounts

The Central Board of Direct Taxes (CBDT) has instituted a compulsory rule for banks and cooperative banks to notify the tax authorities regarding cumulative cash deposits of ₹10 lakh or more in one or more accounts (excluding current accounts and time deposits) held by an individual within a financial year. This regulation is implemented to combat tax evasion and money laundering. The bank or cooperative bank must submit the following details to the CBDT:

  • The depositor’s name and address
  • The depositor’s PAN number, if provided
  • The date of the cash deposit
  • The cash deposit amount
  • The account number(s) in which the cash deposit was placed

This data empowers the CBDT to pinpoint taxpayers who may not be disclosing their entire income or engaging in questionable cash deposits. This reporting obligation is applicable to cash deposits in one or more accounts, excluding current accounts and time deposits, held by an individual. In essence, if you make several cash deposits, each of which is less than ₹10 lakh, but the cumulative cash deposit amount in a financial year reaches ₹10 lakh or more, the bank or cooperative bank is mandated to notify the CBDT.

Money deposited in fixed deposits

The CBDT has stipulated that banks are obligated to report instances where an individual accumulates ₹10 lakh or more in a fixed deposit (FD) within a financial year, spanning one or more time deposits (excluding renewals). This reporting measure is implemented to deter tax evasion and money laundering.

The bank must furnish the following details to the CBDT:

  • The depositor’s name and address
  • The depositor’s PAN number, if provided
  • The date of the cash deposit
  • The cash deposit amount
  • The account number(s) where the cash deposit was made

This data enables the CBDT to pinpoint taxpayers who may be underreporting their total income or engaging in dubious cash deposits. These are instances of cash deposits into time deposits that necessitate reporting to the CBDT:

  • An individual deposits ₹5 lakh in cash into a new FD in January 2023.
  • An individual deposits ₹3 lakh in cash into an existing FD in February 2023.
  • An individual deposits ₹2 lakh in cash into a new FD in March 2023.

The cumulative cash deposit in time deposits for the financial year 2022-2023 amounts to ₹10 lakh, therefore, the bank is obligated to report this to the CBDT. The obligation to report pertains to cash deposits in time deposits by individuals, HUFs, and partnership firms, excluding companies.

Payments made using credit cards

The CBDT has imposed a compulsory requirement on credit card issuers to notify the Income Tax Department regarding cash payments totalling ₹1 lakh or more for credit card balances. Additionally, if an individual settles credit card dues amounting to ₹10 lakh or more through any means in a fiscal year, these transactions must also be reported to the tax department.

The purpose of this reporting requirement is to combat tax evasion and money laundering. The Income Tax Department can employ this information to detect taxpayers who may not be accurately disclosing their complete income or those engaged in questionable credit card payments. The credit card issuer must provide the following details to the Income Tax Department:

  • The credit cardholder’s name and address
  • The credit card holder’s PAN number, if provided
  • The payment date
  • The payment amount
  • The payment method (e.g., cash, cheque, NEFT, etc.)

Should you intend to make a cash payment of ₹1 lakh or more towards your credit card dues, it’s important to be mindful of this reporting obligation. Additionally, you should be ready to furnish the required payment details to the credit card issuer.

TDS Shortfall Income Tax Notices for Homebuyers in Property Purchases

The TDS tangle for which homebuyers are getting tax notices: Many taxpayers, especially homebuyers, have been ranting on social media about TDS (tax deducted at source) shortfall notices from the income tax (IT) department. Homebuyers are being asked to remit the shortfall, equivalent to approximately 20 percent of the value of the property purchased, along with penal interest.

According to IT rules, the homebuyer is required to deduct TDS at the rate of 1 percent of the sale consideration if the property’s value is Rs 50 lakh or more. However, in the absence of a PAN or if the PAN is deemed inoperative, the TDS rate increases to 20 percent. Also, effective July 1, 2023, if the PAN is not linked with the Aadhaar card, the PAN becomes inoperative.

Homebuyers who were unaware, or neglected to verify the validity of the PAN and its linkage with Aadhaar, are now receiving notices. Here’s what the TDS rules concerning property purchase entail, and the options available for buyers who have already remitted the 1 percent TDS, paid the remaining 99 percent to the seller, and have got the notice.

TDS on property purchase

TDS makes tax collection quick and effective, as it ensures that tax is deducted right when the income is generated. The payer deducts the tax and remits it to the government on behalf of the payee. TDS is applicable on several payments such as salary, interest, commissions, brokerage, professional fees, property sale consideration, etc.

“Section 194 IA of the Income Tax Act, 1961, requires home-buyers to withhold tax at the rate of 1 percent on the payment made to the seller, where the consideration or the stamp duty value of the property exceeds Rs 50 lakh,” said Suresh Surana, Founder, RSM India, a tax consultancy (added).

If the property is worth Rs 75 lakh, the homebuyer needs to deduct Rs 75,000 (1 percent of Rs 75 lakh), and pay the remaining Rs 74.25 lakh to the seller. The buyer needs to deposit the amount  deducted with the IT department within 30 days. The seller can later adjust this amount against his overall income tax liability when filing his returns. If there is a higher income tax liability due to capital gains, the seller will need to pay the difference.

TDS in the absence of PAN, or if PAN and Aadhaar are not linked

Per TDS rules, in the absence of a PAN, the TDS should be deducted at a higher rate. “Where no PAN is furnished by the seller, or such PAN has become inoperative, homebuyers would be required to withhold tax at a higher rate of 20 percent,” said Surana.

Further, “in case any person has not linked his/her PAN with Aadhaar by June 30, 2023, then such PAN would have become inoperative w.e.f. 1st July, 2023, in accordance with CBDT circular no. 3 of 2023, dated 28th March, 2023. In case of such inoperative PAN, the higher rate of withholding tax u/s 206AA would be applicable,” added Surana. Further, this higher TDS rate is also applicable where the seller is a Non-Resident Indian.

Timing of the notice could also be a worry

What if the buyer has deducted 1 percent TDS, and already paid the remaining 99 percent to the seller, before a notice is issued? Homebuyers are anxious because they say they were unaware of the rules, and whether the PAN was inoperative or not. They feel they shouldn’t be held responsible and made to pay the penal interest.

Per TDS rules, non-compliance with TDS regulations can result in penalty and interest charges being slapped on the buyer, not the seller. “The homebuyer is responsible for verifying whether or not the seller’s PAN is linked to the Aadhar. In case he fails to do the same and deducts TDS at a lower rate, he would be liable,” said Surana.

“Homebuyers who fail to deduct tax at the higher rate of 20 percent and receive a notice for short deduction would be required to pay the differential amount and file a correction in the TDS return already filed by them in this regard. Additionally, the homebuyer may also be subject to interest @1 percent per month, or part thereof, on the amount of short deduction from the date on which such tax was deductible, to the date on which it is actually paid,’’ added Surana.

He further mentions that, “as it is the homebuyer’s responsibility to confirm the status of seller’s PAN and withhold tax accordingly, the interest liability arising on account of the short deduction will need to be borne by him. However, the homebuyer may collect the additional 19 percent TDS from the deductee, wherever possible, based on their agreement and understanding.”

According to a former Vice President of the Income Tax Appellate Tribunal (ITAT), who doesn’t want to be named, “The critical question is whether the buyer of the property (the tax deductor) was in a position to verify the PAN details of the seller at the time of making the payment, or not.”

He says that if the homebuyer is in a position to ascertain the correctness of the PAN details, but fails to do so, “he has to suffer the consequences.”

But, he adds, on occasion, it is possible that the homebuyer genuinely cannot verify such details. For example, when the PAN of the seller gets deactivated after the buyer deducts 1 percent TDS.

Explaining the interpretation of India’s income tax laws, he said that nobody is expected to perform the “burden of doing the impossible.” If, for instance, the buyer  can prove that the seller didn’t share the correct PAN, he can be pardoned. Also, when  he feeds the PAN details of the seller online in the challan and the invalid PAN doesn’t get flagged at the time, no additional financial burden can be imposed on the buyer later, especially because the lapse is that of the seller.

What should homebuyers do?

Firstly, you can verify the seller’s PAN online. Click here, input details such as the seller’s PAN, his name, date of birth, and mobile number. An OTP will be sent to the seller for verification. On entering the OTP, the website will indicate whether the PAN is active, and if the details match the PAN. Just ensure that the seller co-operates with you and shares the OTP for the purpose of PAN verification.

If you, as a homebuyer, have been served an income tax notice for not deducting the correct TDS, and you can prove that you had no way knowing you were required to deduct TDS at a higher rate, then you can appeal to the income tax tribunal.

Read more at: Link PAN with Aadhaar? Pay 20% TDS for your fixed deposit