Surprises are a part of life, and as such, it can happen that not all surprises are pleasant nor welcome. A surprise that a taxpayer might find themselves receiving is a notice from the Income Tax Department(ITD). While, you may not be willfully evading taxes or have unaccounted cash hidden in your house, you may receive a notice from the ITD simply due to unawareness of the endless tax laws, which require you to be compliant. Let’s see the most common reasons, the ITD sends out notices to taxpayers.
Common Reasons for Getting Notices
TDS Mismatch – If you are a salaried employee, then your employer automatically deducts TDS from your salary, which is reflected in form 26AS. However, many people fail to realize that form 26AS also details all the Tax Deducted at Source(TDS), which if not reported from you, creates a mismatch in the return filed by you, thereby prompting a notice from the ITD. If you have any fixed deposits, regardless of the number of institutions you spread them over, the TDS deducted by each financial institution, corresponding with form 15g/h will be reflected in your form 26AS.
Also, another common error that is made, is by home buyers, who need to pay TDS at 1% of the property value, if exceeding Rs 50 lakhs, on behalf of the seller and deposit it with the government. Failure to do so will result in a notice being sent from the ITD, for failure to pay TDS.
Previous Job Income – Whenever you change jobs, it is your responsibility to report your income from your previous job. Otherwise you will be taking advantage of the set tax slab rates doubly. Your present employer will only deduct taxes after you cross the Rs 2.5 lakh threshold, whereas if you had already earned Rs 1.5 lakh from your previous employer, then retrospectively, tax needs to be deducted in your present job after you cross Rs 1 lakh. This will cause mismatches in your Form 16, which can result in a notice being issued to you by the ITD and moreover, a penal interest of 1% for every month of delay, as you will be found owing taxes.
Missed Tax Return Filing – For people falling under the taxable limit of Rs. 2.5 lakh per annum, a tax return does not need to be filed. However, if you have foreign income or assets you still must e-file your tax return even if income is below taxable limit. So, for income above this limit, before 80C deductions, you must file taxes. E.g. if your salary is Rs 4 lakh and you invest Rs 1.5 lakh, thereby bringing your tax rate below the taxable limit, your tax return must still be filed. Additionally, remember that if you are earning income from other sources, and the total crosses the Rs 2.5 lakh limit, then a tax return must be filed. Failure to do so will result in a notice from the ITD and you may be liable to pay penalties and interest if you are found owing taxes.
High Value Transactions – Whenever high value transactions are carried, a record of it will always exist, even if you fail to report them. The following are classified as high value transactions, all of which may result in a notice being issued upon failure to report them on your tax returns.
- Investment above Rs 2 lakh in mutual funds
- Credit card purchase above Rs 2 lakh
- Investing above Rs 1 lakh in shares of a company
- Cash deposits totaling over Rs 10 lakh in a bank
- Jewellery purchase exceeding Rs 2 lakh
- Over Rs 5 lakh investment in debentures or bonds.
As a precautionary method always provide your PAN details during such transactions.
Random Scrutiny – Sometimes the ITD issues notices, randomly to individuals. If you are the recipient of such a notice, simply go through the notice details and provide whatever is requested.
Foreign Assets – With many people working abroad, the income earned globally or assets and gifts must be reported. With countries working together to curb black money and tax evasion with provisions such as FATCA and Foreign Bank Account Reporting (FBAR), the consequences of not disclosing worldwide earnings and assets can have severe penalties.
While we cannot protect ourselves from life’s twists and turns, we can ensure from a tax perspective we do the needful and report all the details of our income, assets etc., to the ITD, so that no surprises with financial consequences land on our doorstep.