Paying taxes and filing tax returns go hand in hand. There has been an increase in the number of tax notices sent by authorities in the recent years. The rise is not necessarily due to lack of paying taxes or filing returns, but because the tax authorities are now equipped with an integrated database on taxpayers which allows them to track almost all financial transactions.
Third Parties like Bank, Mutual Fund companies, companies issuing shares, bonds, debentures and real-estate related sub-registrar offices report high value financial transactions to the IT department through the Annual Information Return (AIR).
The 10-digit PAN, which has been made mandatory for all high value transactions, not only enables the tax department to know how much you have earned, but also provides information on how you have been spending and investing this money. High value transactions include, but are not limited to, the following:
- Cash transactions of over 2.5 lac rupees.
- Purchase & sale of all immovable property exceeding 30 lac rupees.
- Cash deposits in bank aggregating to 10 lac rupees or more.
- Donation of over 2,000 rupees to registered trust or political parties.
The common reasons why individuals may receive these notices are outlined below:
1. Incomplete or Incorrect PAN Details
Non-submission of PAN details while making an investment or taking up a job will lead to a higher rate of tax deducted at source (TDS), 20 per cent instead of 10 per cent. If the PAN submitted is incorrect, one could even be slapped with a penalty of up to 10,000 rupees. The higher implication of submitting incorrect PAN details is that the TDS will not be credited to your account. This often results in an additional tax demand. The tax refund may also be credited to a different account in case of wrong submission of PAN details.
2. Lack Of Reviewing Form 26AS Before Filing The Return
The Form 26AS contains the details of the tax paid by an individual during a financial year. Form 26AS is easily accessible online. Before filing the return, it should be ensured that Form 26AS has correctly credited the tax deducted. If the bank, bond issuer or employer has deducted TDS, it should be ensured that this has been mentioned in the Form 26AS. All the investments with TDS should also be duly reflected in the tax return. In case of any mismatch, notice shall be issued from the department. This includes income received by previous employers.
3. Discrepancy In Income, Expenses & Investments Reported
Financial services firms, merchant establishments and some registration authorities are required to report certain high-value transactions to the Central Board of Direct Taxes (CBDT). This information is then matched with the returns filed by the taxpayer and a notice is promptly issued if there is a mismatch.
4. Lack of Filing Returns despite income exceeding 2.5 Lac Rupees
If the gross taxable income is above 2.5 lac rupees then it is mandatory to file the tax return, even if there is no tax liability.
5. Wrongly Avoiding TDS Through Forms 15G and 15H
The bank deducts TDS if the interest income on bank deposits exceeds 10,000 rupees (50,000 rupees for senior citizens in FY 2018-19) in a year. However, if you are not liable to pay tax, you can avoid TDS by submitting the Form 15G or 15H. You may receive a notice from the tax department if you try to evade taxes, such as by splitting the deposits in different banks or bank branches as the PAN number would be linked with the accounts.
6. Delay In Filing Of Return Or Payment Of Tax
Delay in filing of tax return and/or payment of the tax liability can trigger the issuance of tax notice. Hence, the statutory liabilities should be completed within the stipulated timelines.
7. Material Change In Income/ Tax Refund Claimed
Significant change, primarily decrease in income or increase in refund claimed, compared to previous year may raise doubts over the income tax return filed and may cause the authorities to further investigate this. Individuals should cooperate with the IT department and provide the relevant documents as requested.
8. Non-Declaration Of Exempted Income
Exempted income like long-term capital gains from securities, up to 10,000 rupees earned on your savings bank account, the PPF interest income etc., even though exempt, still needs to be disclosed in the tax return. Non-disclosure can prompt the authorities to investigate the return filed further for other discrepancies.
9. Being Chosen For Random Check
The Income Tax department also performs random checks on the returns submitted. Hence, receiving a notice does not necessarily mean submission of a wrong Income Tax return. In such cases, the steps mentioned in the notice should be followed and provision of requested documents should be made to the IT department so they can complete their checks and close the case.
Avoiding these common mistakes can help your tax returns be filed more accurately and avoid receipt of income tax notices.
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