Things to do after receiving the Income Tax Notice:

• Review the entire Tax notice thoroughly.
• Verify your name, PAN number, assessment year, and document identification number.
• Identify the reason for the notice.
• Determine the deadline for responding to the notice.
• Compile essential information & documents.
• Seek advice from an expert.
• Submit Response.

Purposes of Income Tax Notice:

• Non-filing of Income Tax Returns (ITR): Notices issued when an individual or entity fails to file their ITR within the stipulated deadline.
• The IT Notice to notify the errors or inconsistencies in the filed returns.
• Verification of TDS and Income Tax Returns: Notices may be issued due to disparities between TDS values and income declared in tax returns.
• Request for Specific Documents or Information: Assessing officers may issue notices to taxpayers requesting relevant documents.
• Conducting Scrutiny: Notices may be issued to initiate scrutiny as per section 143(2) of the Income Tax Act..

Documents needed in response to Income Tax Notice:

• Copy of Income Tax Notice.
• Explanation to the information requested in the notice.
• Providing supporting documents for the details sought in the notice.

When does the IT department send an Income Tax Notice?

Failure to file Tax Returns: If the taxpayer fails to file their Income Tax Return, he may receive a notice to file the ITR. Tax penalties of up to Rs. 5000 shall be imposed for late tax filing. Furthermore, in case of delayed filing with outstanding taxes, the taxpayer shall be charged 1% interest per month starting for the due date till the date of filing of ITR.

Error in TDS Amount: Discrepancy in the Tax Deducted at Source (TDS) amounts are among the most frequent errors that arise while processing tax returns. There could be a number of causes for this difference, one of which being your employer's or deductor's mistakes or delays in filing TDS returns. In these kinds of situations, it's important to understand that you should immediately contact your employer to request an adjustment of the TDS amount refunded to you if this mismatch affects your return. You can ensure that your financial information is accurately represented in your tax returns by taking immediate action on this matter.

Discrepancy in the ITR: The discrepancy in the income & deductions disclosed by the Taxpayer in ITR is another reason for receiving an intimation u/s 143(1). In such cases, identify the discrepancy in the intimation, by comparing the values under the columns ‘As provided by Taxpayer in the return of Income’ & ‘As computed u/s 143(1). These discrepancies may occur due to certain factors, such as mistakenly omitting declaration of income, like interest on Fixed Deposits (FDs), or incorrectly claiming deductions or under the wrong sections of the Income Tax Act. Furthermore, Inaccurate or missing information in the returns may also be a factor in these discrepancies. Types of intimations;

• Intimation with no demand or refund.
• Intimation determining demand.
• Intimation determining refund.

Seeking professional advice in order to ensure the discrepancies are addressed immediately and your tax filing return complies with the regulatory requirements.

High-Value Transactions: High-value transactions are generally:

• Cash deposits into a saving bank account during a year upto Rs 10 lakh.
• Cash deposit/withdrawal from a current account during a year upto Rs 50 lakh.
• Credit card transactions exceeding Rs 1 lakh.
• Purchasing bonds and debentures, Investments in mutual funds upto Rs 10 lakh.
• The buying or selling of real estate for more than Rs 30 lakh.

Any high-value transactions with any appropriate entity must be notified to the Income Tax authorities. This preventive method makes sure that the right taxes are applied to every transaction on time. Also, a tax notice could be issued if such transactions are not reported.

Investments made in the name of a spouse: In an attempt to possibly avoid paying taxes, people often buy assets in the names of their spouses, children, or other close family members. These assets include a diverse range of financial instruments, including shares, debentures, fixed deposits, mutual funds, and real estate. Any income derived from such investments is subject to Tax & must comply with the Income tax provisions. Such income should be disclosed as per Clubbing Provisions, while filing your tax return in order to avoid any risk of receiving a tax notice from the IT department.

Documentation: In certain cases, the Income Tax department may be required to look at particular records/documents that had an impact on how your returns were filed. The notice is issued to submit the response with the documentary evidence, the taxpayer should submit all required documents within the stipulated time..

Non-disclosure of assets for wealth tax: As per certain provisions of the Income tax Act, the taxpayer is required to disclose his assets & liability in the Income Tax Return. Failure to do so, increases the chance of getting a notice from the Income Tax (IT) department. Asset includes real estate investments, automobiles, luxury goods like yachts, jewellery, antiquities, fine art, etc.

Random scrutiny: The IT department has started randomly scrutinising returns under section 143(3) to enforce tax compliance. If you receive a scrutiny notice, you should check the validity and duration of the notice, which usually occurs within six months from the end of the financial year. If the Assessing Officer finds a genuine reason to do so, older cases may also be sent under section 148. Then, make multiple copies of the notice, submit the requested documents, and request an acknowledged copy of the cover letter. If the notice is regarding old dues, adjust them against any pending refund claims for the current year.

Types of Income Tax notices:

Notice under Section 142(1)

Notice under Section 139(9)

Notice under Section 148

Notice under Section 156

Intimation under Section 143(1)

Notice under Section 143(2) for scrutiny assessment u/s 143(3)

Notice under Section 131

Notice under Section 245