Income tax Notice

Got IT notice? Ensure you reply correctly

Shantanu Saha, 63, who retired a couple of years ago, woke up to an SMS from the income tax department asking him why he hadn’t filed his tax return for the Assessment Year 2014-15 (where income from 2013-14 is accounted for).

Saha safely assumed that since he had stopped earning any income, he need not have filed income tax returns. He anticipated that the fixed deposit interest and the amount he received for a lecture at an institute would not get reported. He was not the only one who should have filed tax returns, but failed to do so, and hence received the SMS or email asking them to file tax returns.

Similarly, data was obtained regarding the shops from shop owner’s association and licence issuing authorities. “A shop owner received an SMS in March and February asking why the return for the shop/firm was not filed. He had to respond saying that he used to file a return as a proprietor,” says Paras Savla, partner at KPB & Associates.

The income tax department has been conducting data analysis to identify non-filers and sending SMS, email and letters to those against whom specific information was available from Annual Information Return, Centralised Information Branch, TDS and TCS Statements, as per Central Board of Direct Taxes.

What prompted the move? “There were lakhs of tax payers who had paid taxes in excess of Rs 1 lakh and filed return on income of upto Rs 10 lakh during the three years starting 2011-12, but stopped filing returns in 2014-15,” said a senior income tax officer on request of anonymity.

The action has borne fruits for the income tax department, which is aiming to widen the tax base. During 2013, 2014 and 2015, about 30,68,662 new returns were filed and additional tax of Rs 4,733.61 crore was collected after the drive. In fact, in the first round itself, 12.19 lakh non-filers were identified and helped the department garner 5,36,220 returns, thus collecting Rs 1,017.87 crore as self-assessment tax and Rs 898.22 crore of advance tax,” as per commissioner of income tax (C&S) B K Sinha.

The move was aimed in the right direction looking at the exuberant gap in the permanant account holders vis-à-vis the tax returns received each year. Vaibhav Sankla, director at H&R Block India, points out, “There are about 23 crore PANs, but merely 4.33 crore returns were filed during the FY 2015-16, which includes the revised returns and returns filed for previous years. This ratio is significantly low compared to 50-60% seen in other developed economies. Even if we take into account that we have many individuals in the age of 20-21 years and also that we are an agrarian country and agricultural income is exempt from taxes, the numbers are askew.

Hence, the income tax department’s non-filing management cell has been approaching individuals in a bid to widen the tax base.”

So, if you have received the notice, then high value transactions would have been reported against your PAN.

Citing an example, Ameet Patel, past president & co-chairman of taxation committee at Bombay Chartered Accountants’ Society, says, “All the banks are supposed to report cases where interest is paid to the depositor but no tax has been deducted because of Form 15G/H submitted by the depositor. Similarly, the tax department gets details of the buyer and seller of immovable properties from the offices of the various sub registrars in the country.”

But why do people fail to file returns when required? “Some typical reasons why returns are not filed are that the tax payer would have become a non resident and doesn’t have India income, income would be below threshold, erroneously considering that gross income is above the threshold limit but deductions lead to a total income below threshold limit, deliberately not filed or wrongly presumed that because tax has been deducted at source, no further tax is payable and no need to file return,” says Patel.

Who needs to file?

As per the income tax act, it is mandatory for you to file an income tax return in India if your gross total income (before allowing any deductions under section 80C to 80U) exceeds Rs 2,50,000 (Rs 3 lakh for those above 60 years and Rs 5 lakh for individuals above 80 years) in a financial year.

This apart, you also need to file your returns if you want to claim an income tax refund, wish to apply for visa or loans, carry forward a loss, resident Indians having foreign assets and financial interest or if you are a company.

Those who have income from a property held under a trust, a political party or a research association, news agency, educational or medical institution, trade union, a not for profit university or educational institution, a hospital, infrastructure debt fund. Another case could be if you are earning rental income of more than Rs 1.8 lakh a year, where the tenant has to deduct TDS.

Notice an opportunity

After the elapse of two financial years, one cannot file a delayed return. A notice also acts as an opportunity for those who did not file the returns during the two-year extended deadline period that is offered, as you can then file the return in response to the notice.

“However, if you have been filing a written reply to the notice, like in the past, then you may be in for trouble. Those who have received the notice, the mode of reply too would be mentioned in the notice – whether through SMS, email or physical letter. One has to follow the said mode,” warns Savla.

Ease to respond

“The convenience to respond to notices has improved and tax professionals are having a far better experience as there is an electronic trail everywhere. Earlier, one had to attach copies of return, the notice, relevant proofs and make three copies of each set for acknowledgement purpose. Now you just have to log-in to the e-filing account, where they have thoughtfully given a lot of options and if you want to add something beyond the options then there is a separate comments box,” notes Sankla.

Now you just need to login to your e-filing account, go to “compliance” section and click on “view and submit compliance”. Tax payer has to select the tab ‘Filing of income tax return,’ which lists the assessment years for which return has not been filed and respond whether ITR “has been filed” or “not been filed.”

If you have filed, then the details including acknowledgment number need to be submitted. If you haven’t, then you need to tell them whether return is under preparation, business closed, no taxable income or others.

You also need to communicate the details of the various transactions reported as ‘Related Information Summary’, which are essentially transactions received from third parties such as banks, TDS returns, post offices, based on which the notice has been sent. You need to inform the income tax department, whether these are your own transactions and if not taxable then are do they relate to exempt income, savings, gifts, etc.

Before you disregard the notice

Firstly, check the threshold for the year, pertaining to which you have received a notice and ensure you don’t flout the limit. For instance, the Rs 2.5 lakh limit is applicable from FY2014-15. However, the limit for FY 2013-14 has been Rs 2 lakh.

Ignoring the notice and the tax liability can attract penalty. The Income Tax Act allows the assessing officer to penalise you monetarily for not filing returns or evading taxes. A penalty of Rs 5,000 is levied if a person fails to file his return as per section 271F, while interest at the rate of 1% per month is levied for delayed returns. The penal interest is calculated from the day when the tax was overdue and hasn’t been paid. So, if you default on the advance tax payment from the September 2014 quarter, then the interest of 1% is calculated from September. “The officer can initiate recovery proceedings, which would include attaching bank accounts and demand notices,” says Sankla.

If the assessing officer sniffs evasion of taxes, then he has the power to scrutinize your Indian income for the past 4-6 years, while the ceiling extends upto 16 years for foreign assets.


Source: dnaindia.com

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