An income tax notice is a written communication sent by the Income Tax Department to a taxpayer alerting an issue with his tax account. Taxpayers, in general, are issued income tax notices under the Income Tax Act, 1961 regarding non-filing of ITR, concealment of taxable income, claiming an in genuine tax refund, computing excessive tax losses, long term capital gains (LTCG), scrutiny etc.

1) Delay in filing income tax returns (ITR)

• Filing of tax return where the individual has taxable income is mandatory under section 139(1) of the Income Tax Act.
• If one has not filed the return by the deadline, one will receive a reminder notice from the income tax department.
• The notices for non-filing by the due date are generally automated reminders which point out the obligation under section 139(1) and remind taxpayers to file their returns to avoid penalties.
• A notice under section 142(1) may be issued requiring the taxpayer to furnish the return if the same is not filed within the due date by an Assessment Officer (AO) in the course of assessment proceedings.

2) Filing defective return

• If income tax returns are not filed in the correct form or there are mistakes while filing an income tax return, one will receive a defective return notice from the income tax department.
• Mistakes can vary from filing incomplete information, claiming deduction under the wrong section or missing out on any specific income ignored completely.
• If you have incorrectly filed your ITR, you may need to file a revised ITR before the deadline ends.

3) Misreporting LTCG from equity

• You need to report any realised long-term capital gains (LTCG) on listed equity and equity-related mutual funds at the time of filing ITR.
• Reporting LTCG on equity can be a bit complex for taxpayers.
• One should ensure that the right computation is done and the information is mentioned correctly.
• A simple calculation error may get you a demand notice, where the tax department can ask you to pay the tax due.

4) Not declaring investments made in the name of spouse

• Cases where one would have made investments in the name of their spouse but have not shown the income from those investments in their return.
• In such a scenario, any income from such investments can be taxable in the hands of the assessee and not the spouse and the assessee will have to declare it at the time of filing returns.
• Before filing the ITR, it would be prudent to consider the income arising to the spouse out of assets acquired out of the income of the tax payer.

5) Non-disclosure of income

• If you have not shown some income in your ITR, then you may get a notice from the income tax department if they detect the non-reportage.
• If the income tax department receives any information that some income such as bank interest income or income from shares, etc. has not been disclosed by the assessee, then the income tax department will send the assessee a notice for non-disclosure of income.
• Hence, before filing the return, it is prudent to check Form26AS and the details of overseas incomes (in case of resident and ordinarily resident) like overseas bank statements, payslips etc., to ensure that all incomes reflecting therein are disclosed in the return of income.

6) Setting off refunds against remaining tax payable

• If the assessee has claimed a refund on the tax paid but there are still some previous tax dues payable, them the AO may send the assessee a notice.
• The AO will give intimation in writing to such taxpayer of the action proposed to be taken regarding the refund claimed.
• The AO can ask for the pending demands from the previous years to be adjusted with the refund amount.

7) TDS claimed not matching with Form 26AS

• While filing ITR, the TDS should ideally have to be the same in Form 26AS and Form 16 or 16A.
• However, there can be several reasons why some details may mismatch.
• Notices for TDS mismatch are issued under section 143(1).
• The reason for getting this notice is a mismatch in the TDS reported by the deductor to the revenue authorities and the TDS claimed in the return of income by the assessee.

8) High Value Transactions

Following are certain high value transactions for which notices may be issued by the Income Tax Department

• Aggregate deposits in savings bank account of Rs 10 lakhs or more
• Purchase of bank drafts or pay orders in cash for Rs 10 lakh or more
• Deposits or withdrawals to/from current accounts of Rs 50 lakhs or more
• Purchase or sale of immovable property having circle value (registered value) of Rs. 30 Lakh or above
• Aggregate New Fixed Deposits of Rs 10 lakh or more
• Payment of credit card in cash of Rs 1 lakh or more
• Non cash payment of credit card of Rs 10 lakh or more
• Cash received on account of sale of goods or rendering of services exceeding Rs 2 lakh
• Purchase of any pre-paid instruments issued by RBI of Rs 10 lakh or more in a year
• Expenditure in foreign currency via debit card, credit card or traveler’s cheque for the amount Rs.10 Lakh or more
• Mutual Fund Investment in a year of Rs 10 lakh or more
• Purchase of bonds or debentures for Rs 10 lakh or more in a year
• Purchase of shares of company for Rs 10 lakh or more
• Share buy-back from a person amounting Rs. 10 lakhs or more

9) Tax evasion in earlier years

• The Income Tax Act gives the IT department power to reassess previously filed ITR’s.
• An AO can pick tax returns for reassessment based on certain pre-defined criteria.
• Notice for reassessment is sent only when tax officer has reasons to believe that income which was chargeable to tax has escaped assessment.
• This provision is normally used in cases where tax officer has reliable and corroborative evidence of high-value tax evasion.

Author
CA Ankit Gupta