Income Tax Scrutiny
Income Tax Department reviews the Income-tax returns of thousands of Indians each year. They monitor the pattern of the individual’s income tax return filing. Random selection of some scrutiny cases done by the Income Tax Department and others are selected deliberately as they fall under the criteria of pre-set watch lists that have been laid down by the Income Tax Department. One must remember that if you have received an Income Tax scrutiny notice, there no need to sweat about the same.
Income Tax department sends a scrutiny notice to a large number of businessmen and salaried individuals who file Income Tax returns every year. Getting noticed does not mean that you are found guilty; it is just a normal action undertaken by the IT department every year as a routine checkup. The idea is to assess the pattern of Income Tax Return filing. To ensure that everything is in order and as per the standard protocols and norms laid down by the department.
Understanding about Income Tax Scrutiny
This notice is being issued after filing of Income Tax Return. The department may ask you to initiate scrutiny for your case. This notice may be a result of a random check or a deliberate attempt.
This notice may be issued under a section or clause and clearly defines the reason for scrutiny.
The aim of doing this is to provide an opportunity for the individual to substantiate his or her income declaration and the expenses, losses, exemptions, and deductions in a Financial year.
Understanding the process of Scrutiny
- The process of scrutiny starts with the notice from the income tax department
- Assessing Officer conduct inquiries as deemed necessary from the assessee.
- The idea is to monitor the income declared and other deductions as mentioned by the employee during the income tax return process.
Reason for Income Tax Scrutiny notice
When you fail to file a return:
It is the major reason why scrutiny is initiated as you not able to file an ITR for the current financial year or multiple years. Sometimes, the difference comes in the calculation as it may not match with the IT Department. You may also miss declaring any income in a particular financial year.
Sudden rise in the fall of income
This is a self-explanatory case where the tax amount decreases or increases drastically in very little time. It also forces the Income Tax Department to check the details of the Income and Income tax return filed .For instance, if your income tax return has jumped significantly from Rs 5 lakh in one year to Rs 50 lakh in the next year, it may raise an alarm in the minds of IT officers who may then issue a notice of scrutiny for you.
High- value transaction taken place in the financial year
In case any high-value transaction done by an individual in a financial year which sounds different from normal spending habits, then also individual gets a scrutiny notice. For example, if you made a purchase of a house or a piece of land or have received a huge amount in the bank account from anyone which is not a part of normal income, then they're a chance of getting scrutiny notice,
Any mismatch in TDS Credit
If any mismatch happens in the TDS Credit as claimed in respect of the details of the Income Tax Department.
Declaring lesser income or more loss
In case, declaration made of lesser income or more loss in comparison to declaration given previous year, you may come under Income Tax scrutiny. For a normal salaried person, such a situation usually comes and that is the reason, the Income Tax Department may want to question you.
These things often happen in the case of a huge business where salary or losses are highly volatile. Even in those cases, the chances of receiving scrutiny notice is quite high.
Non-declaration of exempted income
Some people do a mistake of not to disclose exempted income at the time of filing Income Tax returns. Income which is being generated from a long-term capital gain, interest income earned from Bank Account or FDs up to Rs 10,000 or any gifts received from other falls under the exempted category.
But still, these things should be clearly announced while filing IT returns to save yourself from future trouble.
How to tackle Income Tax scrutiny notice?
Do not Panic
- An individual need to understand that there is no need to get panic at the sight of Income Tax scrutiny notice. It is a result of random selection and in that case, there is not to worry about the notice. It can be a regular check on income and return statements.
- In case you have nothing to hide from the IT department, then you do not have to worry about the notice.
- All you need to do is to give a proper justification of any unusual pattern in your income, expenses or deduction in a financial year then scrutiny will become a normal routine check for you.
Read properly details of the notice
After receiving the scrutiny notice, one needs to check all the details of the notice which includes your PAN details, name and fiscal year to which it refers.
One also must check the name of the office and name of the Assessing Officer.
It is very important to read out the details of the notice and find out the section under which the notice has been issued to you. You may take expert advice about the section. You can then prepare your reply as per the terms mentioned in the notice.
Arrange your documents
- Even if your case is clear, then also it must to do aligning for all your documents well in advance as it may be required to get submitted at the time of investigation.
- Essential documents which may be required are salary slips from previous or current employer.
Never Ignore the scrutiny notice
- One must never ignore the scrutiny notice or take it lightly. Ignore notice may complicate things and you already lost the first battle against the IT Department.
- They may start judging you by this and may put severe penalties later for your reckless behavior.
Never hide any Information
Income Tax Department has all the details of transactions done by an individual in a financial year. So do not try to hide information from the Income Tax Department which you need to declare and show in the first place. By doing so, you will become vulnerable and get liable for heavy penalties and fines.
Always respond on time
It is important to tackle the matter with full sincerity and paying due attention. Any information or documents required by the Income Tax Department must be submitted before the due date. Do not delay any of your responses and comply with all the deadlines always.
Take experts advise
There is a possibility that you are not able to understand each term of the notice. Ignoring those terms upfront and not taking any action on those just because incognizance is no right way to handle the notice. In case of not understanding properly the notice, you can seek professional help or expert advice. You can get into a consultation with a Chartered Accountant who can then give you proper direction as to how to deal with the notice.
Keep a note of your scrutiny number
Scrutiny number or notice number works in the form of reference for future communications with the IT Department. It must to always keep reference number handy.
