Introduction
Where there is income, there is tax. This is an often-repeated phrase. It is the duty of all resident Indian citizens with taxable income to file income tax returns. it is mandatory for every individual with a gross total income above the basic exempted limit as specified by the income tax department to file income tax returns for that relevant financial year. An income tax return is a form in which the assessee’s income in India is indicated and the applicable tax liability on the income is calculated at the rates specified by the department.
Non-filing of income tax returns can lead to unpleasant consequences for taxpayers. The income tax department can issue notices under section 143(2) of Income Tax Act. In this article, we discuss all the aspects of the non-filing tax notice, like reasons for receiving it, communication with the tax authorities, gathering and organizing documents and steps to address and rectify the issue.
The income tax department identifies non-filers through data analysis, which is done by them through the data collected from various channels like banks, through their TDS, TCS certificates, central information branch, annual information report, etc. Once the non-filers are identified, the department sends notices through emails, SMS or letters. It also uploaded in the e-portal login of the assessee. It makes tracking the notices and responses easier. The assessee who receives the notice must submit a response to it within a reasonable time.
Decoding the ITR Non-filing Tax Notice
Taxpayers usually get tense when they get a notice from the income tax department. But not all notices need to cause alarm to the assessee. It could be simply to seek some clarification or for additional documentation. So what is an ITR non-filing tax notice? Let us decode everything about the ITR non-filing notice and the steps to respond to it.
The Non-filing tax notice is issued by the Income Tax Department to taxpayer for many reasons. They may seek information or clarification about the discrepancies in the income tax return filed or about the financial transactions of the assessee or for scrutiny. The purpose of this notice is to ensure that the taxpayers comply with the rules and to rectify discrepancies or errors in the filing.
After the taxpayer files and verifies the return for a particular financial year, the income tax department starts processing it. The department validates the information provided by the taxpayer in the return with the data in Form 16, Form 26 AS, AIS, TIS, etc. Arithmetic accuracy, validity of exemptions, and deductions claimed. If there is a mismatch, notice under Section 143(1) of the Income Tax Act of 1961 is issued. If there is a shortage of tax paid, a demand for payment of the balance tax will be mentioned in the notice.
Therefore, taxpayers must maintain accurate records of all financial transactions. They must also respond immediately to the notices and produce the necessary documents and information to the authorities whenever they ask for them. It is also important to report all income and deductions accurately, pay the tax dues and file the returns on time to avoid receiving notices from the authorities. Taxpayers must maintain copies of all documents and communications, including responses to notices.
Possible reasons for non-filing notices
There are many reasons for receiving non-filing notices from the Income tax department, apart from not filing the returns on time or having filed them incorrectly. They are:
Income mismatch
The notice may be sent when there is a mismatch between the income reported by the taxpayer in the return and the information retrieved from financial statements like Form 26AS, annual information report (AIS), TDS certificates, etc.
- Not reporting income
If the taxpayer fails to report all sources of income, like interest income, rental income, or income from investments, he may get the notice.
TDS amount mismatch
When there is a mismatch in the TDS details reported by the taxpayer and the data available with the department, a notice can be issued to seek clarification
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Non-filing of tax return
If the taxpayer whose income exceeds the basic exempt threshold limit fails to file returns, he may get a reminder to do so.
High-value transactions
The income tax department monitors high-value transactions like cash deposits, purchase of property, shares, mutual funds, and other investments. The department may inquire about the source of funds for such transactions.
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Incorrect computation of tax
Whe there is a discrepancy in the calculation of tax under Section 234 A/B/C and there is a difference in the amount in the report and in the revenue authorities’ records, the taxpayer will receive a notice seeking clarification.
Defective return
Selecting the wrong ITR, resulting in an incorrect return or incorrect information, an inaccurate calculation, or incorrect credits, will result in notices from the department.
Non-reporting of foreign account or investments
Taxpayers are required to report the details of any foreign account or investment. Failing to do so will result in receiving notices from the department.
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Scrutiny
The income tax department may wish to scrutinize and send notices seeking information. The taxpayers must cooperate with the authorities and provide them with all the information and documentation required for scrutiny.
Immediate steps upon receiving the notice
Reason for the notice:
First and foremost, the taxpayer must read and understand the cause of the notice and the information required by the authorities.
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Verify the details
Next, the taxpayer must cross verify the details mentioned in the notice with the tax return, financial statements like Form 26AS, AIS and note any discrepancies, if any.
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Type of response and rectification
If the notice has been received for non-filing, the taxpayer is generally allowed a certain specified time limit. The taxpayer can file the return within that time. If the taxpayer is not able to file the return within the specified time, they can request for an extension by submitting Form No. 13.
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Prepare the documents and information required
If the notice is for scrutiny of the return already filed, the notice will list the documents or information that the taxpayers must provide. The taxpayers must keep all the documents, like bank statements, investment proofs, and TDS certificates, ready in support of the information provided in the return.
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Submit the response
Taxpayers must take care to respond to the notice with accurate information within a reasonable time.
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Honesty and transparency
The information provided must be honest and transparent. A detailed explanation for the delay will help to condone the delay and avoid unpleasant consequences.
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Clear and comprehensive response
The response to the notice must be clear and comprehensive. It must contain the necessary information along with proper documentation. The response must be submitted within the time specified by the authorities. Failing to do so can result in further penalties and complications. Follow up on the responses is important to ensure that the case has been resolved.
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Interaction with the authorities
After submitting the response, the taxpayers must keep track of all the communication with the tax authorities. It can also be checked in the taxpayer’s e-filing portal login.
Communication with Tax Authorities
To ease communication, income tax authorities have enabled e-services for taxpayers. So, notices are sent in email to the taxpayers. They are also uploaded to the e-filing portal in the login of the taxpayers. The taxpayers can submit their responses by replying to their email and on the e-filing portal. It is displayed on the assessee’s ‘My Account’ on the e-filing portal of the income tax department (https: //incometaxindiaefiling.gov.in.)The response sent by the taxpayer from the primary email address available in their records will be considered as a valid response to the notice. All supporting documents can also be submitted as attachment in pdf format in the reply to the email sent by the assessing officer of the department.
The income tax department has adopted paperless assessments, to save time and effort both for the taxpayers and the tax department. It would also bring in more transparency and consistency in tax positions. This initiative for conducting online communication with taxpayers is aimed at minimizing the human interface between the tax authorities and the assessees. The e-proceedings section in the taxpayer’s login will display all the correspondence between the authorities and the taxpayers.
Taxpayers do not have to visit the Income Tax office for regular issues like scrutiny, grievances related to refunds, tax filing, etc. When there is a closure or completion of the proceedings of the notice, the final order, letter or document is delivered to the assessee under the e-proceedings tab in the e-filing website of the department. Assessees must always be alert to the emails received from the income tax department and address them immediately to avoid complications later. They can also login to their e-filing portal and check the status of their return filed, any notices received, responses and replies to notices, etc.
Gathering and organizing documents
After receiving the tax notice from the income tax department, the taxpayer must read and understand the reason for the notice and the requirements of the tax department. If it is a tax demand, the taxpayer must respond within 30 days if he does not agree to it. By fully understanding the nature of the notice, the taxpayer will be in a better position to address the issue and respond correctly.
The next step is to gather the relevant documents and information, including returns, receipts, and other records pertaining to the issue mentioned in the notice. Organizing the documents systematically will streamline the process and help to resolve the matter easily.
Rectifying Non-filing Issues
- Notices may be received when the return is not filed or when there is an error or discrepancy in the return filed. If the notice is a reminder that the taxpayer has not filed a return for the particular year, he can then file the return. He may have to pay a fine and interest for late filing. But he can avoid other legal consequences.
- If there are minor errors in the return, the notice may be an inquiry about basic information, and submitting the requested information is sufficient. But if there are errors or discrepancies in the return filed, then the process is different.
- As per Section 139(5) of the Income Tax Act, taxpayers can submit revised returns after receiving the notice by correcting the discrepancies due to any unintentional omissions or errors. The section provides that they can revise it within three months before the end of the relevant assessment year or before the completion of the assessment year, whichever is earlier.
- When there is a mismatch between the information submitted in the return and the data contained in Forms 26AS and AIS, the taxpayers can rectify the errors in the revised return and submit the same. Similarly, when the taxpayer has claimed a higher exemption or deduction, the discrepancy will be mentioned in the notice.
- The income tax department gives the taxpayer an opportunity to explain the difference between the information they reported in their return and the data in the financial statements. If the department is not satisfied with the response to the notice, a demand notice under Section 156(1) is sent.
- There will be a demand for a shortage of tax paid when there are discrepancies in the return filed. The taxpayer then has two options. He can either submit that the demand is correct and pay the difference tax and file a revised return or disagree with the demand, either in full or part. If they disagree, they can apply for reprocessing and file a rectification application under Section 154(1). In such a case, all the supporting documents must be uploaded.
- Sometimes the assessing officer may require some additional documents, which will be mentioned in the notice. Then the taxpayer has to login to his e-filing portal and upload the required documents.
- Often, taxpayers fail to verify the returns after submitting online through the e-filing portal. Filing is complete only when verification is done by the taxpayer. The return can be e-verified through their internet banking account.
Seeking Professional Assistance
Seeking professional assistance has many advantages.
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Expertise and Experience
Tax professionals are experts in their field and can guide taxpayers to file accurate tax returns. They have a lot of experience and know the rules and procedures very well.
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Accurate compliance
They are good with compliance procedures, so can help taxpayers file accurate returns while minimizing penalties.
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Efficient solution
They provide efficient resolution to notices, demands, inquiries, etc., from the department and provide accurate guidance.
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Risk free and peace of mind
As the risk of errors and discrepancies is reduced, taxpayers are risk free and can focus on their business development. The taxpayer can have peace of mind.
Choosing the correct tax professional
The taxpayer needs to:
- Choose a professional tax expert with expertise and experience.
- Check the reviews and reputations of the professionals.
- Ensure that the price is competitive and reasonable.
- Easy to communicate with and solve problems
- Ensure that their practices are ethical and transparent
Conclusion
Income tax notices are issued for different reasons. Taxpayers must understand the types of notices, and when assessees receive the notice, they must read and recognize the reason and rectify the same within the specified time. They can then file a revised return. The notices must be responded to promptly. Taxpayers should not forget that the income tax department has access to most of their financial information. So they must try not to hide any information and submit accurate information in their returns. Taking the help of professionals will ease the complex web of income tax compliance and make filing risk free for the taxpayer.
Frequently asked questions
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Why does the taxpayer receive a tax notice from the income tax department?
Answer: The income tax department can issue a tax notice for a variety of reasons. It may range from non-filing to scrutinizing the income reported in the tax return filed by the taxpayer.
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what are the documents required while submitting the reply to the tax notice?
Answer: The documents vary according to the type of notice issued. The basic documents are 1) Income tax notice copy
2) Certificate of tax deducted, form 16, part A and B
3) Investment proof, if applicable
- Where can I verify the financial transactions and tax deductions on the IT portal?
Answer: You can download the annual information statement (AIS) that consists of all your financial transactions that are taxable, which you can download from the income tax portal.
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Can I reply to my income tax notice online?
Answer: Yes, you can login to the income tax e-filing website, go to the compliance section, select the notice and reply to it.
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How does the income tax department send the notice to the taxpayer?
Answer: The income tax department sends the notice to the taxpayer, usually through email. It will also be uploaded to the taxpayer’s e-filing login.
