Top reasons why you can get a Income Tax Notice in India

Receiving an IT notice is never enjoyable for anyone, but it could make taxpayers anxious. The taxpayers must respond swiftly and within the allotted time frame to the IT Department’s inquiries in order to resolve the notification and/or any outstanding tax debt. This article will explore the top reasons that might get you an Income Tax Notice.

Following are the Top reasons why you can get a Income Tax Notice:
  1. Incorrect information on the income tax return.
  2. Mismatch Between Actual and Declared Income.
  3. You haven’t filed any returns; you’ve only paid the tax.
  4. Unexpected changes in investment levels, income, or large transactions
  5. TDS discrepancies
  6. Unpaid tax on interest income
  7. Investigation Purpose

Mismatch Between Actual and Declared Income

You may receive a tax notice if there is a discrepancy between your claimed income and the actual income you have earned. It’s possible that you didn’t intend to do it. Income tax department can quickly identify irregularities since every financial transaction can be monitored and documented. (Must disclose all interest received, even if TDS was deducted, and any capital gains, even if they are negligible, tax-free income or dividends)

Incorrect information on the Income tax return

One of the most common reason for Income tax notice is Incorrect or incomplete information on the Income tax return. Therefore, Fill out your income tax return form completely and accurately, including your name, address, and PAN number. You will receive a notification if any of these facts are incorrect.

Top reasons why you can get a Income Tax Notice
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Sudden changes in investment levels, income, or large transactions

The tax department will be extremely attentive if there is a sudden, major decrease in income or an unusual, sharp jump in income levels. The income tax department may become interested and send you a notice if you’ve bought very valuable assets, real estate, or assets, or if your bank account has a lot of high-value transactions. Cash deposits above Rs. 10,000,000 per year, credit card purchases over Rs. 20,000,000 per year, etc. are examples of high-value transactions. If you place an excessive number of investments in your spouse’s or child’s name, the money generated will be regarded as your own and should be taken into account when determining your overall taxable income. So, You can be notified if this revenue is not reported on your tax returns.

Unpaid tax on interest income

Unknowingly, you may have failed to include some interest income that you have accrued; However, since the interest is credited to your bank account or reinvested in your assets, the department can easily identify you as the source of the overstatement, and you may receive a notice for failure to pay taxes.

TDS Discrepancies

TDS may be deposited by your employer, the bank where you have fixed deposits, or the issuer of bonds in whose securities you have invested. You are likely to receive a notification from the tax department if there are any errors in the TDS deducted and the income and interest that you have received. The revenue from prior jobs is often not taken into account when filing taxes. Further, If TDS is shown on your Form 26AS, the department may become aware of this and inquire about it.

Investigation Purpose

The IT division is constantly searching for methods to expand the tax base and wants to ensure that everyone who earns money is taxed. Additionally, they seek to enforce strict compliance. As a result, they are able to send notices to everyone. (Chances of being noticed are particularly high if you were an Indian resident in the previous year and became an NRI in the current financial year.)

You may have not filed the returns but paid the tax

Tax filing and tax payment are two separate processes. The tax authority may issue you a notification if you have only paid the tax and not submitted any returns. You must submit tax returns, even if your business experienced a loss for the fiscal year. Some people will submit their returns online. The procedure is not over at that point. After uploading the returns, you have 120 days to submit the ITRV. Also, A few people submit their tax returns beyond the deadline. Therefore, Penalties may be levied for delays. You may receive a notification from the IT division in such circumstances.

How to avoid getting Income Tax Notices?

From the perspective of a typical taxpayer, it is often quite difficult to grasp all the laws, but by doing some simple checks, you may probably keep the Income Tax Department from bothering you too much. Following are some of the basic checks you must follow to avoid getting Income Tax Notices.

  1. Learn about the typical income you receive and how it is taxed. 
  2. Recognize the typical financial transactions you make each month and how they are taxed?
  3. In the following situations, prepare and electronically file your tax return without fail even if your annual income is less than 2.5 lakhs.
    • Receiving Foreign Income
    • Became an NRI
    • Owning a Business
    • Working as a Contractor
    • Having Freelancing Income
    • Being a Managing Partner or Director of a Company
    • Trading in the Stock Markets
    • Trading in the crypto currencies
    • Pass through income (non-gift) from friends and families
  4. Learn when TDS to be deducted and the rate at which it should be deducted.
  5. Plan which tax deductions to consider in your tax returns.
  6. Examining your return after you or a tax advisor has submitted it.
  7. Don not forget to mention the asset you sold for gain or loss in your Income Tax return.

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