Income taxpayers can find it stressful when they receive a notice of demand, as they are not yet sure of the purpose of the demand or the procedures to be undertaken. An income tax demand notice is given when the Income Tax Department considers that there is an extra tax to be paid by the tax-paying entity. It is important to respond to such a notice in a timely and correct manner to avoid the penalties, interest or coercive recovery measures.
This blog will define an income tax demand notice, its purpose and the manner in which a taxpayer is expected to respond to it.
Introduction
Most taxpayers believe that after filing their income tax submission, they no longer have a role to play. Nonetheless, the Income Tax Department can increase a demand even after the processing or the assessment of the return. This is demanded by the use of an income tax demand notice.
Taking a blind eye or waiting a bit longer to respond to such a notice may have grave repercussions, such as recovery actions and refund reimbursement. That is why it is important to know how to act in case of receiving a demand notice to pay income tax.
What is an Income Tax Demand Notice?
An income tax demand notice is a formal document by the Income Tax Department notifying that an individual owes this sum of tax to the department. The notice will note how much is being demanded, on which part it is being requested and why.
The notices are usually issued as per Section 143(1), Section 154, Section 156 or upon assessment proceedings being completed.
What to do When Receiving an Income Tax Demand Notice?
Notices of demand for income tax could be given due to several reasons. These are poor correspondence between the income reported by a taxpayer and the income reported by deductors, inaccurate calculation of tax, disallowance of deductions or exemptions, failure to report all income, and TDS credit errors.
In some cases, the demands can be increased because of technical or clerical errors; hence, it is wise to make sure that the notice is read before acting.
1. First Step: Authenticate the Demand Notice
The initial and greatest thing to do is to check the information stated in the notice. The taxpayers are advised to verify the assessment year, the section where the notice is issued and the amount required.
To detect the discrepancies in demand, it can also be recommended to compare the demand with the income tax return filed, Form 26AS, and AIS.
2. Forms of Reaction to an Income Tax Demand Notice
A taxpayer can react differently depending on whether the demand is right.
In case of the right demand, the taxpayer has to pay the amount stated within the stipulated time.
In case the demand is somewhat accurate, the taxpayer has an opportunity to accept the accurate part and contest the amount.
In the event of a misplaced demand, the taxpayer can provide a response in which he does not agree with the demand and justifies it well.
3. Response on an Income Tax Portal
The majority of the income tax demand notices are also responded to by the income tax e-filing portal. The taxpayer should log in with his or her PAN and password and go to the section for pending actions or responses to outstanding demands.
Once the taxpayer has selected the assessment year in question, he or she is free to either concur or dissent with the demand and give reasons and supporting details.
4. Documentations to be Used During the Response
Documents in support are very important during the response to a demand notice. This can contain copies of income tax returns, calculations of income, 26AS, tax paid challan, and evidence on deductions made.
When relevant and clear documents are provided, there is a high chance of resolving the demand in time.
5. Time Limit for Responding to Demand Notice
Notice of income tax demand normally has a deadline beyond which a reply must be given. Loss of time in responding to this time can lead to payment of interest and commencement of recovery measures.
Taxpayers are expected to respond early enough and not to wait until the last day.
What then Happens after Submitting the Response?
After submission of the response, the Income Tax Department examines the explanation and documentation given. In case of satisfaction, the demand can be decreased or eliminated. Should there arise any disagreement, additional clarification or process can be taken.
It is possible to monitor the state of their response using the income tax portal.
Consequences of Ignoring an Income Tax Demand Notice
Disregard of a demand notice can be very disastrous. The department can take recovery measures in terms of refund adjustments, freezing of bank accounts, or imposing recovery notices.
Thus, although the demand may seem wrong, it should be answered instead of being ignored about the notice.
When to Seek Professional Help?
In case a large amount of demand or a complicated legal or factual problem is involved, it is better to consult a tax professional. Professional advice assists in the creation of an appropriate response and adherence to the procedural requirements.
Conclusion
The obligation of the taxpayer to respond to an income tax demand notice is one of the imperative tasks. Reviewing the notice closely, knowing the purpose of the demand and providing a prompt and correct response will help taxpayers to avoid unnecessary penalties and legal issues. A structured and informed approach would make sure that, despite an accepted or disputed demand, there is a well-organised resolution that results in peace of mind.
