Common man panics whenever there is any notice from Income Tax department and runs to tax consultant. But most of the notices are just in form of intimation or reminder, where responding within required time limit is the key. Now we will look at 6 major reasons for which you may get notice from Income Tax Department.
You have not filed the income tax return
Income Tax department is empowered to issue notice to file the return of income for the preceding 6 years relevant to the current financial year. If you receive notice asking you to file the return for year/s, then it would mean one of the following reasons or basis.
- You have missed to file the return for any year/s, where you have filed the return for all the previous and succeeding years.
- You have carried out high value transactions but have failed to file the return for such peculiar year/s (can be easily found by linking AIR transactions and assesse data mismatch)
Income Tax Department will consolidate data from AIR (Annual Information Return), CIB (Central Information Branch) and/ or TDS/TCS returns. Hence, in case of any mismatch, you will receive notice for non-filing return.
It is suggested that, you should first file your return and then respond to the notice, in case you have missed on filing of returns. If you have already filed the return, you should respond to the notice quoting and attaching such proofs either online or physically. In case, you are one of the exempt tax entity or person, then you should mention such fact that you are not required to file the return.
There is mismatch or discrepancy in reported income and actual income
As mentioned before, the Income Tax Department can track your transactions based on AIR, CIB and TDS/TCS return. Hence, if you fail to report any transaction/s in your return, there will be discrepancy in the actual income and declared income. There would be various reasons as below.
- Non disclosure of bank interest or any exempt income like dividend etc.
- Deduction reported under wrong section
- Tax payer details are incomplete or incorrect
- Mismatch in TDS available and TDS claimed as per return and 26AS
- Salary from previous employment not considered etc.
If you have reported lesser income than what it should be or have not filed the return even if you are required to, then Income Tax Department will issue notice for asking for why there is mismatch in actual income and declared income.
AIR transactions or high value transactions etc.
AIR refers to Annual Information Return which will need to be filed by banks, financial institutions, mutual funds etc. for reporting high value transactions as prescribed under the Act. Some of the examples may be quoted as below.
- Cash deposits of Rs.10 lakhs or more in the bank account
- Credit card payment exceeding Rs.2 lakhs
- Purchase of mutual fund units exceeding Rs.2 lakhs
- Purchase or sale of immovable property of more than Rs.30 lakhs
These high value transactions are reported by the third parties and are reflected in 26AS of your tax credit statement. If there are any of your transactions which are categorized and reflected under AIR section of 26AS, then you may get a notice asking whether you own these transactions and if yes, then asking for the explanation.
Outstanding tax liability
There might be a chance that since your interest on fixed deposits gets reinvested till you liquidate the same, you may have not considered it a taxable income. This may lead to omitting of the taxable income which may further lead to outstanding tax liability in that year. Income Tax department is empowered to track down such omitted (whether intentional or non-intentional) transactions and issue notice to ask for the explanation and with demand for such outstanding tax liability.
One solution for avoiding such notice will be review your 26AS before filing the return, match it with your return and then only move forward.
Investigation/ scrutiny
Income Tax department may send the notices to tax payers randomly, calling it as scrutiny assessment notice. This notice is basically issued to ensure that the return is filed properly showing the correct income, correct deductions and exemptions etc., which leads to appropriate tax revenue. In case, your return is found erroneous then you may be fined with heavy penalty and interest by the department. They are basically selected for ensuring better tax compliance based on these reasons,
- Non-filing of the returns
- Declaring higher loss or lower income as compared to earlier years (which results in lower or nil tax liability)
- Mismatch in 26AS tax credit and TDS credit as declared in the return of income
- Exempted income not declared by the assesse
- Bank interest (FD and savings) not reported by the taxpayer in the return of income
- Compulsory scrutiny cases
- Cases where addition was made for exceeding Rs.10 lakhs in earlier year based on substantial question of law
- Cases related to transfer pricing where addition was made more than Rs.10 lakhs in previous years
- Cases relating to survey, search and seizure etc.
Non-disclosure of assets and investments or failing to report clubbed income and assets
Taxpayers get an easy way by transferring a part of their income to their spouse or children, thinking that they won’t be required to pay tax on the same. But there is a clubbing provision in the Income Tax Act, wherein you would be required to consolidate all assets and income so transferred without or little consideration in your own tax computation and pay tax on the same.
Similarly, if you are an NRI and have failed to report foreign assets or interest in foreign assets in your return of income, the Income Tax department can fire a notice asking for the explanation.
So be aware of the clubbing provisions and any other reporting requirements (exempt income, foreign income etc.), on omission of which you may be liable to receive the notice.
Personal details do not match or are wrong or attachments are missing
Sometimes the taxpayers fill in the return but with wrong PAN number or wrong name or wrong address etc. Sometimes the taxpayer even miss out on vital personal details like PAN or pin code etc. In certain cases, profit and loss account and balance sheet is mandatory attachment but return do not contain the attachments.
In these case, the Income Tax Department is empowered to issue the notice for mismatch or omitting the enclosures etc. to the taxpayers.
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