Wednesday, July 13, 2016

What You Need to Know About Income-Tax Notices and How to Avoid Them

It is not uncommon to be served with income tax notice from the Income Tax Department. Most tax notices alert recipients on issues that need to be addressed or corrected immediately. The tax notice should never be ignored because the tax department can impose fines of up to Rs 10,000 for failure to respond to its notices among other repercussions. The number of people receiving income tax notices has increased in recent times due to a number of reasons, including improved tax monitoring as a result of stricter customer identification procedures and fast and efficient online tax filing. This development led to a reduction in the in omissions of high value transactions, income nondisclosure and defective fillings. Below is a list of 8 common reasons why people get income tax notices and how to avoid them:

Income-Tax Notices

1. Tax return reminders

Individuals who have not filed their tax returns can expect a reminder from the Income Tax Department. The notices can cover up to 6 previous years. It is instructive to note that the Income Tax Department can levy a penalty of Rs 5,000 or more for delays. If you have been served with such a reminder, but are not required to file a return, make sure you clear the issue with the tax department.

2. Mistakes in the TDS amount 

Cases of having a mismatch in Tax Deducted at Source (TDS) can easily occur if your employer or deductor delays in filing their TDS returns or have gone on to file incorrect returns. If you receive a TDS notice, ask your employer or deductor to review the TDS amount credited to your name to keep it in good standing.

3. Discrepancy in Tax returns 

The tax department is also likely to send you a tax notice, if there is a discrepancy in your returns. The discrepancy can arise as a result of giving incomplete information or claiming an income deduction under the wrong section. You can correct this problem by reviewing your returns and making the necessary amends.

4. Non-disclosure assets 

The law mandates taxpayers to remit wealth tax on their assets, if the value is over Rs 30 lakh. The department has set the wealth tax at 1% on values above the Rs 20 lakh limit. Always disclose your assets and pay your taxes in good time to avoid getting non-disclosure notices in the future.

5. Investments made under the family name

It has become a tradition for most family members to make investments or purchase assets using their family or family member’s name. Unfortunately, most people who do so are driven by the motive to evade taxes. The incomes that come from these extra investments will attract taxes under the assigned member’s name. If these incomes are not declared during filing, they will attract the attention of the taxman. Whenever you receive such a notice, make it a point to declare your income and ensure corrections are made before submission.

6. Documentation review

Documents are not usually requested when filing the file returns because the Income Tax Department expects you to enter the right information. However, once in a while, the tax department will review your documents to ascertain the basis of its submission. When you are called upon by the tax department to do so, submit your documents promptly as requested.

7. Reporting of high value transactions

High value transactions such as bank cash deposits of over Rs 10 lakh; purchases of over Rs 30 lakh and mutual funds over Rs 2 lakh need to be reported to the Income Tax Department as required by law. The list also includes credit card purchases that exceed 2 lakh and other stipulated spending.

8. Random scrutiny

In its new strategy to enforce tax compliance among the Indian populace, the Income Tax Department has started performing random scrutiny of tax returns. If you are a recipient of this type of notice, you need to first check its validity and respond accordingly without delay.

Tax Assistance

When you get a tax notice, avoid panic and oblige with the demands of the taxman as requested, because failure on your part can cost you a lot of money and deprive you of peace of mind. You may also risk imprisonment in certain cases. Uptra Consultancy Services is a leading accounting firm based in Chennai. The firm has a team of dedicated professionals, including chartered accountants, auditors and lawyers who are ready to help you file your returns and keep your books safe and up-to-date. 

Author Bio : 

Anand Rajendran is a freelance writer living in Chennai, India. His interest in personal finance and budgeting began when he was earning an MFA in theater, living in one of the most expensive cities in the country (Chennai, TN) on a student's budget. Today, he writes for a number of websites and keeps up his own Tax Consultancy Services named Uptra


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