It can be very disappointing if you filed your taxes in time but still got served with an Income Tax notice. It is a frightening experience for anyone who receives it.
But there is no need to panic. Sometimes the Income Tax department may pick up specific cases for manual scrutiny assessment. This usually happens because of some errors in return filing, unusual transactions, or other such factors.
If you understand the conditions for manual scrutiny, it is easy to avoid these Income tax notices.
We’ll list them down and explain one-by-one how to avoid these notices.
1) Unfiled Income Tax Returns
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There are no exceptions to filing ITR; it is mandatory for all individuals with a taxable income (i.e. annually above 2.5 Lakhs).
Your TDS being deducted and unavailability of you or your CA are not excuses for not filing your returns.
Always ensure to file your returns way ahead of time, and don’t wait until the last date. CA services may become costly towards the end when everyone is in a rush.
2) Substantial difference in the declared income of two consecutive fiscal years
The Income Tax Officer (ITO) may think that you are trying to evade taxes if an ITR form satisfies any one of these two conditions:
a) Considerable reduction of income from the previous year’s ITR
b) Significantly elevated losses from the previous year’s ITR
In these cases, he will send you an income tax notice and ask for your financial reports or those of your family members.
This typically happens among high-income businessmen or traders. So if you’re one of them, be sure to report everything as accurately as possible in your ITR.
3) Mismatch between TDS declared in your ITR and your form 26AS
All the TDS deductors are required to send the deducted TDS amount to the government’s account, along with a report of the TDS deducted. These details are captured in form 26AS, which is uniquely issued for each individual.
Form 26AS contains a lot of financial details besides your TDS deductions. It can be obtained from the IT department or your bank’s website.
There should be no difference in the TDS claimed in your ITR and the TDS updated in your form 26AS. If there is a difference, you will receive an income tax notice.
4) Exempted income not properly disclosed in ITR
How will the ITO determine which parts of your income are exempted from taxes? You have to report those exempted income sources under proper headings in the ITR.
It could be so that the car you registered in your name is a gift from your father-in-law. But the ITO will not know that if you don’t declare it as a gift in your ITR.
You must know all other exempted income sources. You can claim benefits under those categories by accurately reporting them in your ITR in order to avoid an ITR notice.
5) TDS deductions not carried forward when changing jobs
If you have changed jobs in the fiscal year under consideration, then you need to inform your new employer about TDS deductions made by the previous employer.
If you fail to do so and use multiple Form 16s (from both the employers), you may accidentally claim double the TDS deduction than actually applicable.
This will be termed as inaccurate ITR filing and the ITO will most likely send you an income tax notice. To avoid this, make sure you carry forward all your TDS deductions across all your employers within a fiscal year.
6) Savings account or fixed deposit interest not reported in ITR
Most folks assume that banks will automatically deduct TDS and so you need not report in your ITR.
What they forget is, the TDS deduction limit is only 10%. So if you fall in the 30% income bracket, you still have to pay 20% tax explicitly.
To ensure the ITO doesn’t send you a notice, report all interests from your bank accounts and other term deposits in your ITR and let the government do the calculation.
Conclusion
Regardless of the amount of TDS deducted, all sources on which TDS is applicable must be duly reported to the IT department. Try to find legitimate ways to save tax, don’t try to evade taxes by excluding important details from your ITR forms; the IT department diligently monitors your income and expenses.
There are a lot of simple mistakes an individual may make while filing an ITR. Make sure you accurately report your income from all sources as most of the cases selected for mandatory scrutiny assessment involve incorrectly filed returns.
