Tag: ITR notices

5 Steps to Respond to an Income Tax Notice Online Confirm You Complied with IT Department

Income Tax (IT) Notice: Why You Received an Income Tax Notice Online? The IT Department, through Income Tax Department of Government of India’s website, sends Income Tax Notice online to selected tax assessee for scrutiny of their income tax return (ITR) filed online. Here, tax assessee is also known as taxpayer or filer. Income Tax Department’s online Notice requires tax assessee to furnish information and to rectify or correct errors in income tax return of taxpayer, to explain the discrepancy etc. and to carry out any other proceeding as specified in Income Tax Department’s online IT Notice. So, While an intimation is sent by Income Tax Department to assessee after processing his returned income i.e. after processing his ITR, an IT Notice is send to inform whether scrutiny of returned income is required to be carried out or not.

An intimation is an automated computer generated intimation by Income Tax Department after the processing of your Income Tax Return. This intimation is for various reasons and may include – Intimation that no further action is required on your return (i.e. no demand/no refund); Intimation that there is a demand of tax; Intimation that there is refund payable to you; Intimation that after processing of return, an addition/deletion has been made to your return etc

A few of the Income Tax Notifies may require no action by taxpayer; however, majority of them would require the taxpayer to respond or even to comply with proceedings initiated by Assessing Officer within specified time frame.

5 Types of Income Tax Notices

Income tax notices are issued to taxpayers for variety of reasons like correction of defective income tax return, seeking of some information, scrutiny of income tax return, demand of tax and adjustment of refund against outstanding tax liability. A tax assessee must know the section of Income Tax Act under which a notice has been issued to take appropriate action.

1. A defective return (u/s 139(9)): A return filed by the taxpayer is considered to be defective if there is a lack of information or if there is a contradiction in the information furnished in the return. The Department issues a defective notice u/s 139(9) requiring the assessee to cure the defect within a specified time frame which can be up to 15 days. The taxpayer can also seek extension of time to rectify defect in return filed by him.

2. Intimation after processing of return (u/s 143(1)): This notice is issued by the Income Tax Department after it has processed the ITR filed by the assessee. This intimation is issued under Section 143(1) of the Income Tax Act,1961 and it may show that there is ‘no change’ in the return filed by the assessee. In some cases, the intimation issued can show a huge amount of tax, interest, etc. being demanded which is entirely incorrect. In such a case, you must verify the details in the intimation letter and respond to the intimation letter u/s 143(1) immediately and get the tax demand reduced to zero.

3. Types of Income Tax Notices Sections Under Which Notifies are Issued to Tax Assessee For not filing return / seeking information (u/s 142(1)): This is a very common type of notice issued to a tax assessee who has not yet filed his Income Tax Return. The notice issued under this section may also be issued to inquire about additional information that may be required by the Assessing Officer for assessment of income of tax assessee. The notice under this section can be replied online by logging into e-Proceedings and then filling the Response in Detailed Notice.

4. Scrutiny selection (u/s 143(2)): If the return is selected for scrutiny, the Department may issue a notice under section 143(2) seeking an explanation and supporting details for claims/discrepancies.

5. Demand Notice (U/S 156) : A notice issued by the Assessing Officer to the taxpayer under which any order made by the Assessing Officer under the Act results into tax, interest, penalty, fine or any other sum becoming payable by the taxpayer. Such amount is required to be paid by the taxpayer within the stipulated time period as specified in such notice.

How to Reply to an Income Tax Notice?

The IT department issues all notices online and can be downloaded from the Income Tax Department website – www.incometax.gov.in. The intimation and other notices can be viewed and response filed in the e-Proceedings option available on the home page of the Income Tax Department’s e-Filing portal – https://www.incometaxindiaefiling.gov.in/home after login into the portal using your login ID and password. Your user ID for login is your PAN.

Step 1: Visit the Income Tax Department’s home page on the Government of India website.

Open – https://www.incometaxindiaefiling.gov.in/home

Step 2 : Click on Login and enter your login id & password. Your User Id is your PAN.

Step 3: Check for any notices. Also, check the ‘Worklist’ tab for actions required to be taken.

Step 4: View ‘Detailed Notices’ and file ‘Response’ by clicking on ‘Submit’. In case of tax demands, while submitting a response, you would need to choose from the below options-

  • Disagree with the demand
  • Demand is correct
  • Demand is not correct but agree to the adjustment.
  • Demand is partially correct

Submit your response and keep a lookout for follow up notices from the income tax department that may require you to provide clarification on your response that was previously submitted.

Is it Mandatory to File ITR?

Filing of ITR by a taxpayer before end of the ITR filing statutory time period is mandatory in following situations:

Income exceeding the Exemption Limit.

My total income after all the deductions has resulted in a situation where I have already paid in excess of my required tax and I would like to receive a refund of this excess.

You have financial assets or entities o

Financial assets or entities o / signing authority over any account outside India.

Foreign companies that are eligible for treaty benefits on financial transactions in India

You are an NRI with an accrued income of ₹2.5 Lakh in a year in India

Consequences of Late/Non-filing:Late filing of ITR incurs a late filing penalty which would be required to be paid by the defaulter based on the delay in filing the ITR. Wilful non-filing of ITR is an offence under Section 276CC of the Indian Income Tax Act and defaulter can be imprisoned for minimum three months to seven years as per tax payable on return of income.

Including all income in returns is a sane approach. Since most transactions today create a paper trail, high value expenditures like purchase of a car will automatically get reported by the vendor such as car dealer. Then it is a matter of IT Department seeking proof of income of such taxpayer from returns that he has filed truthfully. Even if such income has not been reported by taxpayer in returns, it can always be taxed at 30% (plus surcharge and cess as applicable) under Section 115BBE of the Act.

Why Disclose Income?In the same manner, all other income even which is totally exempt and for which no return is required to be filed, should also be disclosed in ITR as entire process of filing online ITR is now very easy and online. It is matter of few minutes if all relevant details of all income, all investments and also all taxes already paid (along with details of 26AS) are already in order and only Aadhar e-verification of online filed Form V is required to be done to complete entire process of filing online returns of income.

Exempt Income & NIL Returns:Returns are not mandatory if total income of taxpayer is below the exemption limit but return can be filed in few minutes by keying in all income, all investments and all taxes paid so far and also TDS already deposited and also 26AS.

Conclusion
The IT Department has undergone massive transformation and all intimations, notices and tax demands are now managed ‘Faceless’ i.e. digitally and without any human intervention. However, it is very important to reply all such notices on time. The system maintains a record of all replies and the IT Department appreciates in writing those who reply on time.

High-Risk Cases of TDS Credit Claims Under Investigation

The tax authorities are set to scrutinize high-risk refund cases for the financial year 2023-24 (Assessment Year 2024-25) using statistical analysis. Tax officers were informed of this initiative through an internal advisory issued on October 3, 2024, which is not publicly accessible. As a result, even if you have already received a tax refund for the financial year 2023-24, your case may still be selected for investigation if the tax department suspects any irregularities.

The Income Tax Department has identified “suspicious clusters” of Income Tax Returns (ITRs) linked to common email addresses based on specific criteria. Information regarding these high-risk clusters is being shared with the relevant nodal officer at the Central Registry Unit (CRU) for further verification. This is aimed at examining the suspicion of fraudulent refund claims made in an organized manner or through a single individual.

Implications for Taxpayers

Experts indicate that this internal notification primarily impacts those taxpayers who have filed their income tax returns (ITRs) and claimed refunds that may appear questionable to the tax authorities. However, it’s important to note that not all refund claims will face extensive review; the circular specifies that only cases deemed ‘High Risk Refund (HRR)’ will undergo investigation by the tax officers.

The Income Tax Department is actively identifying instances where individuals have erroneously claimed refunds for AY 2024-25 (FY 2023-24). Taxpayers involved will receive notices via email and registered post, regardless of whether a tax refund has already been processed. If a taxpayer fails to respond or provides an unsatisfactory response, the department retains the right to summon the taxpayer for a personal appearance, during which their statement may be recorded.

This internal directive also applies to taxpayers who may have previously received a tax refund for AY 2024-25. The tax department may still classify these cases as high-risk and initiate investigations.

The circular highlights previous incidents where improper refunds were claimed through various methods, including incorrect TDS credit claims, underreported income, inflated deductions, and bogus expenses. Consequently, certain cases have been flagged based on established criteria.

How will the tax department identify high-risk refund cases to investigate

The Income tax department has said the following in the internal circular:

  • Kind reference is invited to the subject- High Risk Refund Cases A.Y. 2024-25 disseminated for investigation wing users at Insight-reg
  • Email based clusters of High Risk refund ITRs for AY 2024-25, identified based upon certain rules are being disseminated to the PDsIT (investigation) for the purpose off verification of suspicion that false claims of refunds have been made in an organised manner or through a single key person.
  • Upon receiving the cluster, the jurisdictional PDIT (Inv.)-1 may preferably allocate one or more cluster to a particular DDIT (Inv.)/ADIT(Inv.) for integrated and comprehensive inquiries.

How will the tax department’s investigation team identify false refund cases

The tax department, in the internal circular, said, “While investigating, the investigating officer (IO) will take care of the following aspects:

  • The IO concerned, who has been assigned the case, should first attempt to ascertain the identity of the natural person (Hereinafter referred to as the KEY PERSON) associated with the common email ID identified, by making use of the internal database available with the Department like Insight/ITBA/e-filing portals, etc
  • If such KEY PERSON could not be identified from the internal database, the IO may call for information under section 131 (1A) or by issuance of letter…requesting to furnish:

1. The details and identity of the KEY PERSON whose e-mail id has been furnished in their respective ITRs (including contact details and address of the person), and
2. Submit supporting documents to substantiate the genuineness of claim made on account of exemption, deduction, expenses, etc.

  • The information called for under section 131 (1A) or through the letter issued should mandatorily be delivered through registered post along with service of the same on all the registered e-mail ids. These details should initially be called for without requiring personal appearance of the taxpayers in office.
  • If no compliance is observed and no reply is received, their personal attendance may be ensured, and identity of the KEY PERSON associated with the common e-mail ID may be identified.

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.

ITR Big Update: Salaried employees are getting income tax notices

If you have claimed a fake deduction or exemption in your Income Tax Return (ITR), you may land in trouble. Several reports recently said that the Income Tax Department has been sending notices to salaried taxpayers, seeking proof of tax exemptions and deductions claimed by them in ITR.

The tax rules allow individuals to claim several tax exemptions and deductions under the Old Regime. However, experts say that taxpayers claiming fake or bogus deductions in their return of income may catch the Income-tax department’s attention and end up receiving a notice.

“The income tax department today has a plethora of sources from which one is able to accumulate a great amount of information about the income and expenses of a person. One can expect to receive a notice from the income tax department whenever there’s a mismatch between the information filed in ITR by the taxpayer and the information as received from independent sources,”

What should you do after receiving a notice from the tax department?

These days Income Tax notices are generally sent to the registered email IDs of taxpayers. Tax experts say salary individuals should ensure sending a timely response to any notice from the Income Tax Department. Any delay can further worsen the case for the recipients of such notice.

“In case a taxpayer receives such notice from the tax department, he should ensure a timely response to the said notice addressing all the issues raised in the notice. Further, in case of any assessment proceedings the taxpayer should furnish all supporting documents such as any relevant receipts, vouchers, invoices or any other document as proof of evidence for claiming any relevant deduction, exemption, allowances or rebates, etc,”

“While claiming exemptions and deductions, individuals should ensure that such deductions or exemptions claimed by them are in accordance with the receipts, invoices or other necessary documents maintained by them. In case a salaried employee receives a notice for reporting fake deductions, it is important for such taxpayer to take action immediately,”

When can you receive a notice?

According to experts, you can receive a notice if the Income Tax Department finds any mistakes in your ITR.

“This notice will be sent if there are discrepancies between the deductions you mentioned in your return and the TDS certificate from your employer (Form16). It will also be sent if your taxable income is lower than in previous years,

How much time do you get to respond?

After receiving a notice, the taxpayer generally gets 15 days to reply. However, they can request the local Assessing Officer for an extension of the deadline in case they are unable to respond within the set time frame. “The taxpayer will get a notice and has 15 days to reply. If they need more time, they can ask the officer for an extension

How to respond to Income Tax Notice: Steps to follow

Jain suggests following steps salaried individuals should follow after receiving a notice.

  1. Don’t Ignore It: Ignoring a notice from the Income Tax Department can lead to serious legal consequences. Be sure to respond within the timeframe mentioned in the notice.
  2. Read Carefully: Understand what the notice is about. It will typically contain specific details regarding the discrepancies or issues that have been identified.
  3. Collect Necessary Documentation: Gather all relevant documents and information that could support your case or explain the discrepancies noted in the notice.
  4. Consult a Professional: It may be wise to consult with a Chartered Accountant (CA) who specializes in income tax matters. They can help you understand the issue more clearly and guide you in preparing a proper response.
  5. Draft a Response: If you choose to respond on your own, carefully draft a response addressing the issues raised in the notice. Be clear and concise, and provide evidence if necessary.
  6. Submit the Response: Follow the instructions in the notice to submit your response. The response is usually required to be submitted online on the income tax portal.
  7. Keep Records: Make sure to keep copies of all communications, including the original notice and your response, along with supporting documents.

Should you consult a CA or a lawyer?

Experts suggest professional guidance should be taken by taxpayers to respond to a notice from the Income Tax Department.

“It is advisable for the taxpayers to seek professional help and advice as not responding to such income tax notices in an appropriate manner may entail an unnecessary burden of taxes as well as penalty exposure. if the notice primarily relates to tax issues, such as fake deductions, exemptions, calculations, etc., a CA or lawyer is a suitable choice.

CAs specialize in tax-related matters and can guide you through the complexities of tax laws and will guide you on how to respond. If the notice involves potential legal implications beyond taxation, such as legal disputes or potential legal actions, consulting a lawyer might be more appropriate