For most people, tax season culminates after the return is filed. But the actual anxiety commences when an unforeseen income tax notice arrives in the mailbox. Even a slight error – like not remembering to report interest income or a discrepancy in Form 26AS-can grab the Income Tax Department’s attention. While it may be stressful to respond to a notice, the truth is that most of them are avoidable. It just requires accurate reporting, swift filing and farsighted financial discipline. With the right attitude – and guidance from expert tax consulting services or a trustworthy tax consultant – you can still stay in line, reduce liabilities and enjoy a stress-free tax trip.
This article elaborates on the top 5 Income Tax notices circulated by the Income Tax Department and the ways to avoid them.
Top 5 Reasons for Receiving Income Tax Notices and Ways to Avoid Them
The leading five causes for receiving an income tax notice and how to avoid them are outlined below:
#1 Absence to File an Income Tax Return (ITR)
Any person whose gross income (less any deductions) is over the exempted limit (Rs 2,50,000 in respect of persons under the age of 60) needs to file an annual Income tax return in due time.
If you are a resident Indian and you possess a foreign asset or are a signing official in a foreign bank account, you need to file an income tax return irrespective of your income.
Even where your employer has already subtracted TDS from your salary, you need to file your return to evade a notice.
You can directly go to these notices by logging into your income tax website, going to pending actions, and selecting the tab named ‘e-compliance cell’.
How to avoid
Pay your advance taxes timely and submit returns by the due date.
#2 Non-disclosure of Other Incomes
Every income that has been acquired in the financial year needs to be listed on the tax return. People usually ignore interest income on the savings account, fixed deposits and recurring deposits.
There are many instances where TDS is subtracted at a lower rate by your banker, but you are still subject to a higher tax slab. For example, banks deduct TDS on interest at 10%, while you may fall into a tax slab of 30%. In such cases, you might attract scrutiny for non-disclosure of the whole information or an attempt to reduce tax liability.
Suppose you omit to update your NRI status. In that situation, the deducted TDS rate might be different, since the person accountable for deducting such TDS may impose a lower TDS rate, supposing the individual to be a resident Indian.
With the increase in your inward and outward remittances, the Indian tax department may begin questioning and asking for an explanation for the same. And also enjoin you to file revised tax returns.
How to avoid
- When the year ends, ask your banker to provide an interest statement of your deposits in different bank accounts.
- Log in to the income tax e-portal and update your NRI status.
- List the entire income from all sources in your tax return, even though that amount is excluded from tax.
Mark: Penalty for hiding of income can go up to a maximum of 200% of tax payable.
#3 Error with regard to TDS
The TDS that you display in your return and what is really shown on the Traces portal may not match. In the case of such a mismatch, there is an increased probability of receiving a notice.
How to avoid
Request your hirer or any individual who is deducting TDS from your income to deliver the amount to the government treasury and file the TDS return on time.
Always first reconcile the actual TDS that has been subtracted from your income with your Tax Credit Statement (Form 26AS). Inform the deductor if you find any errors.
#4 Flaw in Income Tax Return
An Income tax return is a statement of earnings by the taxpayer to the tax department. Occasionally, due to ignorance or lack of knowledge, people file the improper ITR form, may omit any crucial information or commit some other mistake.
If the return is not filed accurately, the tax department, in its own discretion, may publish a notice to you under Section 139(9) and guide you to file a revised return on income after rectifying the error.
How to avoid
- Keep all your documents at hand before you file your ITR
- Take the help of a professional if you face difficulty in filing your return
#5 Unusual or High Value Transaction
Instances where the transaction value is substantially higher than the reported income on the return can raise a grant of notice. For example, a salaried person whose salary is Rs 5,00,000, but he made a total deposit in his bank account, exceeding Rs 11,00,000. If such a transaction comes to the knowledge of the department, a notice can be issued. The key point to account for is that these entire transactions are reported directly by the tax department through annual information returns submitted by institutions like your bank, broker, etc.
How to avoid
Note every transaction that you may have performed, even in the event of loss, such as the loss in share trading. It has to be informed to the department to avoid notice.
What to Do if You Get an Income Tax Notice?
Keep your calm and cross-check the information. Identify the reason for the notice’s issue and implement proper measures. Bear in mind that you should never ignore an IT notification. If you are uncertain about resolving the situation by yourself, seek the aid of a certified accountant or a tax expert.
Further, pay heed to the specified markers to avoid legal fallouts:
- Respond to the income tax notice instantly with all vital information and documents. If the complete set of documents is unavailable, you may seek more time but deposit what is currently approachable.
- The department does not always present the document list for haphazard review. In this situation, you must collect and deliver any papers that will uphold your response.
- Make a copy of the things you’re submitting. This is for your records if you seek another enquiry after you file your original reply.
- In the case of a delay in depositing the papers, reach out to the IT department. This will keep them apprised and display that you plan to conform to the assessing officer’s standards.
- When dispatching a response, you must try to get an acknowledgement from the department mentioning that the information has been received. In case of a consequent discord, this will act as proof.
- After you have completed the whole paper and information, design a cover letter outlining your reply. Attempt to answer all of the queries in this letter, and present a thorough list of documents you are submitting with your response.
Important Things to Bear in Mind
- Preserve the Envelope: If you receive a notification on behalf of the tax department, save it. The envelope bears a speed post number, which may act as proof of delivery to you and when it was given.
- Respond Timely: Always respond to the income tax department in a timely manner, even if you cannot collect the necessary information. You may also seek further time to make the same. It would suggest that you are honest and ready to pay heed to the officials.
- Get Professional Help: To address the problem, you may seek the services of a professional. If the notice has a high sensitivity, it is recommended that you have a Chartered Accountant represent you.
Wrapping Up
Receiving income tax notices can be daunting, though most of them are avoidable with timely filing, accurate reporting, and proper documentation. With the aid of skilled tax consulting services and direction from an experienced tax planner, you can not just avoid notices but also ensure smart tax savings annually.
Note, tax compliance is not only about evading penalties – it involves transparency, financial discipline, and permanent peace of mind.
So, stay informed, look ahead, and file responsibly. That’s the surest way to keep tax notices at bay!
