With the Income Tax Department becoming net savvy and going online, it has become very easy for them to identify discrepancies in your papers and to keep a close eye on almost every financial transaction. Therefore, while filing return, one needs to be extra careful. Any wrong details furnished might put you in trouble.
From past few years, almost every taxpayer is receiving notices from Income Tax Department. Now, it has become important that every provision and clause of tax laws shall be strictly abided. There are few reasons due to which notices are being issued and these reasons are very common among taxpayers.
Things to note to avoid notice from Income Tax Department:
- Always file your return timely and correctly – Every assessee liable to file return shall do the same within due date. While filing ITR, due care must be taken to avoid any mistake. Details required in return shall be truly and fully disclosed. Notice shall be issued, if any default is found by the department.
- Balance between Income and Expenses/investments – Ignorance regarding balance between income and expense/ investments may become an issue. Many times, it is found that the assessee has invested more than what they earn (as disclosed in ITR) and then they have to justify the source of funds which has been used for investment. If balance is not properly maintained, then be ready to receive notice.
- Gifts credited to your account – Assessee are generally found taking gifts from friends and relatives. Gifts taken may be in cash or kind. If such gifts appear in your account, then don’t forget to document the evidence for the same. Department may ask for details and source of gifts received. If proper and satisfactory evidence not provided, then department shall issue notice regarding the same.
- Check your Form 26AS (Tax Credit Statement) – Form 26AS is an easy way to find out the details of TDS deposited on your behalf. You should always go through your 26AS to match the TDS with the books of accounts. Any mismatch found may appear in the notice from department.
- Pay Advance Tax – Advance tax shall be paid if the tax liability for a financial year is more than Rs. 10,000. Such tax shall be paid within the same year on the basis of self assessment. Any assessee liable to pay advance tax shall pay it within due date as specified, failure to which may attract penal interest for the assessee.
- Non-Declaration of Exempt Income – All income earned are generally taxed but there are few income which are exempt from payment of tax. Assessee generally does not disclose such income while filing their return thinking that as no tax is to be paid on such income, it is not necessary to disclose it. But this is a myth which needs to be cleared. Incomes like long-term capital gains tax from equity, dividends received on equity shares of Indian companies etc. though exempt shall be disclosed while filing your return.
- Interest from FDs – Utmost care shall be given in interest received from banks. Assessee believes that as banks deduct 10% TDS on the deposits interest, there is no need to pay tax on the same by them. In such case, facts are other way round which shall necessarily be understood to avoid notices. Though bank deducts TDS but you are supposed to pay any additional tax depending on your income tax bracket. For instance, If you are 30% tax bracket and you have FD in bank of Rs. 10 lakhs. Interest rate on the same is 10%. This means interest received is Rs. 1,00,000. Now, the bank pays Rs. 90,000 after deducting TDS @ 10% i.e. Rs. 10,000 and pay to the government. As you are in 30% tax bracket, you actually need to pay 30% to government, which means that at the end of the year you need to pay additional Rs 20,000. If you are not doing the same, then you might be inviting trouble for future in form of notice.
- Interest from Savings Account – It is a big myth that the interest to the extent of Rs. 10,000/- is exempt from tax. However, it must be noted that it is not exempt as such and a corresponding deduction u/s 80TTA is allowed on such interest income. Hence, it is important to disclose the interest income and avail the corresponding exemption to the extent of Rs. 10,000/-. It may be noted that in case the case is selected for scrutiny, you may not be allowed to avail of this deduction and hence, lose on the implicit exemption.
- High value transactions – If there is high value transactions either for investments or spending then chances of you getting the notice from IT Department are very high. There are few transactions which are reported to the IT department under Annual information Returns filed by respective companies and may attract an enquiry ranging from simple to exhaustive by IT department. Any high value transaction should be incurred in planned way. Examples of such transactions are:
- Credit card usage of more than Rs. 2 lakhs p.a.
- Investing in FDs for more than Rs. 5 lakhs
- Depositing more than Rs. 10 lakhs in your bank account
- Investing more than Rs. 2 lakhs in MFs or Rs. 1 lakh in shares
- Buying or selling property over Rs. 30 lakhs
As it may be seen, the above mistakes are common and if due care taken, then it can be avoided to a great extent. Therefore, small points as stated above shall be kept in mind to escape from notices.