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Top Reasons For Which You Could Receive An Income Tax Notice

The Income Tax department issues a written notice to the taxpayers, commonly known as the Income Tax Notice. An income tax* notice can be issued for various reasons, and if someone receives this notice, that person should act promptly to comply.

Paying income tax* is a responsibility for all taxpayers, but many people still fail to do it in time. They often miss out on furnishing important information and even hide their actual income. On many such occasions, the Income Tax department issues a written notice to the taxpayers, and this is commonly known as the Income Tax Notice.
 

Receiving an income tax department notice can be a concerning issue. So, one must avoid all circumstances leading to an income tax notice. But how can you prevent such an action without knowing what triggers this punitive action?
 

That is why we have drafted this article. It discusses the main reasons why the Income Tax Department issues a notice.

Top Reasons That Can Get You a Notice from Income Tax

An income tax notice is considered a punitive action by the tax sleuths. In the last financial year, the Income Tax Department issued nearly one lakh notices to people for various reasons. The primary reasons were failing to file a tax return on time, non-disclosure of income, and unjustified purchases.
 

Here is a list of other reasons that can trigger a tax notice for you.
 

Tax Evasion for Previous Years

You have filed your tax on time in the proper manner, but you still get a notice from the department stating that your tax filing shows suspicious attempts of tax evasion. You may seem clueless, but an Assessing Officer of the Internal Revenue Service can review your tax filings from previous years.

If they find anything suspicious, they can issue a notice under section 147 of the Income Tax Act. However,  every action is based on predefined criteria.
 

Mismatch in Income Disclosure: Declared Income vs. Actual Income

The tax department always maintains a close watch on the taxpayers’ income. If there is any sudden and absurd spike in someone’s income, the department may want to take a closer look at it. It often attracts a notice from the Income Tax Department seeking more information on assets and income.

If you have an absurd amount of investment done in your spouse’s name or child’s name, it can also nudge the tax officers to seek proper disclosure through a notice. You may receive an income tax notice for cash deposits.

Further, if your reported income and tax return do not align, you may receive a tax notice. The same is also applicable for failing to disclose assets or foreign income in your tax return.
 

Tax Discrepancy: Mismatch in TDS Amount

Suppose you are investing in a bond or a fixed deposit. In both cases, the bond issuer or the bank can deposit a TDS. Similar to how your employer submits the TDS. Essentially, anyone who deducts taxes should deposit that amount to the government. All TDS records are maintained in a ledger known as 26AS. This Form 26AS reflects your total earning records from all sources.

Now, at the time of filing ITR, if your TDS records do not correspond with the records in Form 26AS, or Form 16 or 16A, it may raise suspicion. Here, the Income Tax department can issue a notice under section 143 (1) seeking an explanation.
 

Failing to File ITR on Time

Every year, taxpayers must submit their income tax return before the deadline. When the deadline approaches, the tax department will inform you to file your return. Many people still fail to file their tax return within that time.

Delaying the tax return has penalties, and the taxpayer may get a notice from the Income Tax Department under Section 142(1)(i) of the Income Tax Act.
 

Unexpected High-Value Transactions

If you have recently purchased a high-value property that your income does not justify, it may attract a slanting eye from the revenue officers. In such cases, the department may issue a notice to you asking you to explain your source of funds for making such high-value purchases.

Wrong or Incomplete Documentation

Sometimes, filing your income tax returns requires some documentation. If you fail to produce these, the tax authority may issue a notice for you. Such scenarios may occur for all types of taxpayers — salaried, self-employed, and business people.

Random Review

Every year, the Income Tax department randomly chooses some files for review and evaluation. You may get a tax notice in such cases. However, if you have taken all the necessary steps while filing your return and have all the necessary documents with you, you do not have to worry about anything. Just be careful to address the notice within the income tax notice time limit.

How to Handle an Income Notice?

Getting a notice from the income tax department can be a little stressful. But you have to keep calm and follow these steps to deal with the situation.
 

  • Carefully read the notice and understand the purpose.
  • Verify the information on the notice to confirm that it is for you. For this, check the PAN Card number, name, mobile number, email address, etc.
  • Once you have understood the reason that triggered the notice, carefully review your tax filing.

If the notice is for you and you have verified the reasons behind the notice, comply with it within the due date.

Conclusion

The tax department can send a notice to the taxpayer for a host of reasons. Now that you are aware of some of them, we recommend you take precautions during income tax e-filing and avoid making any mistakes.

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Tata AIA Life Insurance

A joint venture between Tata Sons Pvt. Ltd. and AIA Group Ltd. (AIA),  Tata AIA Life Insurance  is one of the leading life insurance providers in India. We post everything you need to know about life insurance, tax savings and a variety of lateral topics such as savings and investments in this space. You can access and read a host of different blogs, articles and pages at the Tata AIA Life Insurance Knowledge Center or get in touch with us with any queries or questions!

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Frequently Asked Questions

Does receiving an income tax notice mean I am at fault?

Generally, the income tax department sends a notice to taxpayers whose tax filing has some issues. Either some documents were missing, or there could be some sort of discrepancies. However, it does not always mean that the taxpayer is at fault.

Sometimes the notice could be a result of random review. However, if you receive a notice from the tax department, you should act on it promptly within the income tax notice time limit.

What is the income tax notice deadline for compliance?

If you receive any income tax notice, you must comply within 30 days of receiving it.

Up to how many prior assessment years can the income tax department review?

The Income Tax Act empowers the Income Tax Department to review the previous assessment years of a taxpayer. The assessment officials can review up to 10 years of past assessment and send a notice under Section 147 of the Income Tax Act.

Disclaimers

  • Insurance cover is available under the product.
  • The products are underwritten by Tata AIA Life Insurance Company Ltd.
  • The plans are not a guaranteed issuance plan, and it will be subject to Company’s underwriting and acceptance.
  • For more details on risk factors, terms and conditions please read the sales brochure carefully before concluding a sale.
  • This blog is for information and illustrative purposes only and does not purport to any financial or investment services and do not offer or form part of any offer or recommendation. The information is not and should not be regarded as investment advice or as a recommendation regarding any particular security or course of action.
  • Please know the associated risks and the applicable charges, from your Insurance agent or the Intermediary or policy document issued by the insurance company.
  • Every effort is made to ensure that all information contained in this blog is accurate at the date of publication, however, the Tata AIA Life shall not have any liability for any damages of any kind (including but not limited to errors and omissions) whatsoever relating to this material.
  • Tax:*Income Tax benefits would be available as per the prevailing income tax laws, subject to fulfilment of conditions stipulated therein. Income Tax laws are subject to change from time to time. Tata AIA Life Insurance Company Ltd. does not assume responsibility on tax implications mentioned anywhere in this document. Please consult your own tax consultant to know the tax benefits available to you.