Income tax assessment scrutiny

All You Needs To Know About Income Tax Scrutiny

Have you received an income tax notice to scrutinize your tax returns? If yes, there is no need to feel stressed about it. The fact of the matter is that the Income Tax Department sends out notice for scrutiny to a large number of individuals and business establishments each year. It does not mean that the tax department has found you guilty of any financial crime or wrongdoing. A scrutiny is just to assess and double check your filed tax returns so that everything is in order as per the satisfaction of the tax authorities.

Here is a look at some of the popular myths and everything you should know about income tax scrutiny.

Understanding income tax scrutiny

Once you file your income tax returns, you may receive a notice from the department to initiate scrutiny for your case. Technically, there are various reasons why the tax department may pick your case for income tax scrutiny. A notice issued by the tax authorities can be under a particular clause or section that clearly defines the reasons for the scrutiny.

Which cases might be picked up for IT scrutiny?

Sometimes, the reasons for the IT department notice could be because you failed to file your returns for one financial year, or because your calculations do not tally with those of the income tax department. You may also be required to present your case if the IT department suspects that you have excluded any financial income or transaction from tax calculations.

Other reasons for your case being shortlisted for tax scrutiny may be as under.

Sudden rise or fall in income: If you have a sudden rise or fall in income in a financial year, this may make the IT department to check your case in detail. For example, if you were filing a tax return of say Rs. 5 Lakh on an average, and suddenly in one financial year, your income tax return jumps to Rs. 50 Lakh, the IT department may want to check the details of the additional income and its sources.

High value transactions in the financial year: If you have made some high value transactions like buying or selling of real estate, land, or high credit card expenses, etc that resulted in huge inflows or outflows of money, your case may be looked at in detail by the income tax department.

Mismatch in TDS credit: If there is a mismatch in the TDS credit claimed by you in your income tax returns as compared to the details with the income tax department, your case may be looked at in detail under scrutiny.

What to do when you receive a scrutiny notice

Income tax scrutiny

Do not panic: Do not panic if you receive a scrutiny notice. The objective of a notice is just to look at your IT returns in detail, and if you have nothing to hide, there is no reason to worry.

Check the details of the notice: Check the details of the notice including your name, PAN number, and the financial year for which the notice has been issued. Also, check the name of the officer who has issued you the notice to rule out any fraud by mischief mongers.

Understand the section under which the notice has been sent: See the details of the notice and find out the section under which the notice has been sent to you.

Prepare your reply accordingly so that you are able to answer all queries requested by the IT department.

Important points to keep in mind when your case comes up for scrutiny

Do not ignore the IT department’s notice: Ignoring the IT department’s notice can complicate things for you. Not replying to a notice will allow the department to consider you at fault and take ex parte decision, including a fine against you for filing wrong or incomplete information.

Never hide any information: Never hide any information that is sought by the IT department. By intentionally hiding information, you would be committing a criminal act, leaving you vulnerable for a fine as well as legal proceedings. Therefore, be clear and share whatever information is being sought by the IT department.

Note the document identification number: The IT department currently sends scrutiny notices online to your registered email address. So, if you receive a notice through email, note down the document identification number of your case. This number will be your reference number in all future correspondence with the IT department.

Always reply on time: Do not delay your response for the scrutiny notice and make sure you file in your reply before the stipulated deadline.

Take professional help if you are unsure: If you are unsure about the information sought or the miscalculations involved, take professional help of a chartered accountant before filing in our reply.

Receiving an income tax notice for scrutiny is not uncommon, and if you reply with the requested details on time, there are no reasons to worry.

Contact Finlaw.in or call +91-9820907711 for Expert Consultation on Income Tax Scrutiny Matters.


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