7 Reasons Why You Could Receive Income Tax Notice


(Last Updated On: September 7, 2018)

As soon we hear words “Income Tax Notice”, an air of fear & reluctance surrounds our mind. No one likes to receive income tax demand notice from the department, let alone replying to one. As the wise one’s said “precaution is better than cure”, hence we bring 7 reasons which could bring you income tax notice.


Reason 1: Mismatch in TDS

We all are well aware of the concept of tax deduction or commonly referred as TDS. And how using income tax form 16, we claim credit of TDS. Many times, in a hurry to file income tax return (ITR) we do match TDS as per income tax form 16 with income tax form 26AS.

It may happen that amount of TDS claimed as per income tax form 16 is more than form 26AS. Hence the department will issue income tax mismatch notice & will ask you to pay remaining tax. In such case, ask your deductor (employer for Form 16 or other for Form 16A) to deposit the TDS & issue new income tax form 16.


Reason 2: Making investment in your family’s name

In India, it is a very common practice to invest in one’s wife or child’s name. And people hope to evade income tax using such shortcuts & do not declare such investments etc. Result knocks on their door in the form of income tax scrutiny notice because of clubbing provisions.

For e.g. you bought some mutual funds in the name of your wife, hoping any income earned on such MFs will become tax free (as your wife’s income will be below taxable limit). But as per Section 64, any income generated through such MFs will be clubbed & taxed in your hands.

Hence, it becomes imperative on your part to declare all such investments etc to avoid income tax notice from the taxmann.


Reason 3: Misusing Form 15G & Form 15H

Income Tax Act directs for TDS on interest received from bank @10% if the it total amount exceeds ₹10,000. But sometimes, the taxpayer’s total income is below exemption limit, hence in such TDS deduction is not necessary. Therefore, using Form 15G (for less than 60 years) & Form 15H (60 years or more), assessee can ask bank not to deduct tax from such interest income.

Many taxpayers misuse these forms to evade tax deduction even when there total income exceeds basic exemption limit. Due to which income tax notice 142(1) etc can be issued.

There is a happy news. You can claim deduction for such interest on bank deposits u/s Section 80TTA & 80TTB.


Reason 4: Discrepancy in income tax return

In a hurry to file ITR, we may make some mistakes (which can be genuine or intentional). Such mistake/ discrepancy can be non-disclosure of other sources income, wrong claiming of deductions, incomplete ITR etc.

In such cases, the income tax department will send you a notice to inform about such discrepancies. You simply need to draft reply of income tax notices & correct the mistake.


Reason 5: Income tax notice for not filing return

Not filing income tax return is one the most common reason why people receive income tax notice. A most common reason is that people think since TDS is paid so there is no need to file ITR. Delay in filing ITR can levy penalty on you like Sec 234F etc.

Hence, It is necessary to identify situations when you are required to file income tax return.


Reason 6: Non-reporting of high value transactions

Any failure on your part in reporting of high value transaction can bring income tax notice. Some common examples of income tax notice high value transaction are as follows:

  • Cash deposit of ₹10 Lac or more in a year in any savings account.
  • Cash withdrawal/ deposit of ₹50 Lac or more (in a year) in a current account.
  • Payment received in cash exceeding ₹2 Lac for sale of goods or services by professional.
  • Credit card payment of ₹2 Lac or more in a year.
  • Transaction in immovable property of ₹30 Lac or more.

Reason 7: Random income tax scrutiny

Notice u/s 143(3) is issued to users randomly picked by the computer. The aim behind such random selection of scrutiny cases is to enforce compliance with tax laws amongst people. If you receive this notice, do not panic, just reply to it.


To conclude

The above mentioned list in exhaustive in nature just the most common one’s. Apart form this, there could be many other reasons for receiving income tax notice. It highly recommended to not ignore any kind of income tax notice as such ignorance can be expensive. You can hire our eCA for easy & hassle free income tax return filing.

Also, the tax filing date 2018 India has been extended till 31st August, 2018. You can easily identify you tax liability using our income tax india calculator & also know income tax refund status live.

Happy Filing 🙂

Author


Team Tax2Win