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Understanding Different Tax Notices Under IT Act
March 25, 2018

Reasons For Getting Income Tax Notices

Last Update Date : April 27, 2019
Estimated Read Time: 5 min

reasons for getting notice

They say “Notice the people who are happy for your happiness, and sad for sadness. They’re the one who deserves better place in your life.” The same way the Income Tax department also notices and appreciates every individual and sends a notice to the taxpayers who don’t pay tax or there are certain other situations where notices can be sent to an individual. Let us now discuss about the situations and the reasons to get notices from Income Tax Department.

What is a Notice?

Notice is an information from the Income Tax Department sent to an individual irrespective of their taxes being filed within the due date. Not all the individuals receive notices. Notices are issued in certain situations where taxes are not filed, assets are not disclosed, error in TDS amounts etc.

Notices are no harm, there is no need to panic instead it’s better to understand the reason for being issued. Notices shouldn’t be avoided. An immediate reaction must be taken. If reply isn’t sent within the allotted time, then the department can charge up to Rs. 10000/- However most notices are issued expecting immediate attention and must rectified as soon as possible. Here are few common reasons for which notices can be issued.

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Common Reasons Notices are Issued For

  1. Taxes paid but returns not filed:  As per the laws of Income Tax Act 1961, if the gross total income of an individual exceeds Rs. 250000/-, then he/she is liable to pay tax. However, there are situations where an individual pays taxes but fails to file the returns on time. In such cases, Income Tax Department sends a notice reminding him/her to file taxes. The Department can charge a penalty up to Rs. 5000/- in case of late filing of returns.
  2. Error in Crediting TDS amount:   There might be discrepancy in the TDS amounts deducted by the employer and the amount entered in the Income Tax returns. In such cases, Income Tax department sends notice. It is insisted that the individual should always check Form 26AS(Online) before filing the returns. Also, you can ask the employer to review or revise the TDS amount deducted.Mismatch of Actual Income and
  3. Declared Income:  Notices u/s 143(3)/143(7) can be issued if there is a mismatch in the actual income earned and the amount declared in the Income Tax returns. There is a possibility of getting a notice in situations where you might have forgotten to declare some income or entering wrong amount or claimed deductions under wrong sections, etc, in such cases, you must review and rectify you returns immediately.
  4. Non-Disclosure of Interest Income:   Many people are oblivious about the fact that they are supposed to pay taxes on the Interest Income received from their savings bank accounts, recurring bank accounts and Fixed deposits. Income Tax Department also allows deductions for such interest incomes u/s 80TTA, up to Rs. 10000/- on interest on savings account. However, interest on Fixed deposits and recurring accounts are fully taxable if the interest income exceeds Rs. 10000/- in a financial year. Irrespective of the interest income taxable or not, the amount must be disclosed in the Income Tax returns.
  5. Transferring investments in the name of Family members or clubbing of Income:  Few taxpayers transfer their investments in the name of their family members (Spouse, Children, etc), considering not to pay taxes on such incomes. But income Tax Act, has a provision of Clubbing of Income, where the individual is supposed to include such investments in his/her Income Tax returns and pay tax on the same.
  6. FATCA Notice:  In case of an NRI doesn’t disclose his/her foreign investments/assets, the Income Tax Department can issue a Foreign Account Tax Compliance Act notice.
  7. Higher Valued Transactions:  Higher valued transactions like mutual fund investments more than 2 lakhs, credit card payments exceeding 2 lakhs, purchase of property exceeding 30 lakhs, cash deposits in a bank account exceeding 10 lakhs in a financial year, etc, must be considered at the time of filing the Tax Returns.  Annual Information Return (AIR) which will be filed by the banks, Mutual fund institutions, financial institutions etc, for the high valued transactions. These high value transactions are reported by the third parties and are reflected in Form 26AS of your tax credit statement. If there are any of your transactions which are reflected under AIR section of 26AS, then you may get a notice asking whether you own these transactions.
  8. Random Scrutiny:  Income Tax Department sends notices to Taxpayers randomly, which is Scrutiny. They are selected on the random basis for better tax compliance based on any of the reasons mentioned above. The notice is sent basically to make sure that the returns are filed properly and within time. The individual receiving notices are insisted to respond within allotted time.  If you get notice under section 143(2), it means your return has been selected for scrutiny by your Assessing Officer. In this case it is extremely important that you seek proper professional guidance before you respond to such notice.

Other Reasons For Getting Notices

There are few more situations where an individual is liable to receive a notice from the Income Tax Department under different sections.

  • Documentation: Notice u/s 142(1) is sent to the taxpayers in case the tax department or the AO wants to verify the claims made by in the return filed by you or in case if you have not filed the return then it may ask you to file it within the time mentioned in the notice. This notice can be sent before or after the filing of tax returns.
  • Defective Return: A tax return is termed defective if it has not been filed with all the necessary information or documents as required under law. In case the taxpayer’s return is found defective under the laws of Income Tax, then he/she is sent a notice u/s 139(9). The tax payer is given 15 days’ time to rectify the defect after the notice is received from the Income Tax Department.
  • Intimation of processing of return: An individual after having filed his/her tax returns can receive an intimation. When you file your tax return one of three things can happen, as per section 143(1).
  • Outstanding Tax Amount: If you had received any prior notice and the notice results in an amount payable by you, either in the form of tax, interest, penalty or fine, then a notice under section 156 will be issued for the outstanding tax amount.
  • Tax on Previous Year’s Income: in case of a taxpayer having outstanding amount of tax that should be paid in the previous years, he/she may receive a notice under section 245 which is an intimation to him that tax department may adjust that old demand against his current refund claims.

It is better to file taxes on time by satisfying all the conditions set by the Income Tax Department. Otherwise wait for a notice to be issued. However, H&R Block is an expert in helping you with your notices. You don’t have to worry. To ensure your taxes are filed correctly and within the due dates, enlist the aid of the tax experts at H&R Block India.

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Chetan Chandak (B.Com, LLB)
Chetan is the Head of Tax Research at H&R Block (India) with an experience of more than a decade in tax advising. He is also a regular contributor for some of the leading news publications in India such as Economic Times, Financial Express and Money Control. Professionally, Chetan is fascinated by international taxation and expat-related tax research.

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