You’ve Got Mail! From The Tax Department... What Next?
You’ve received a letter or email from the IT Department. Don’t panic. Read this, to understand what different notices mean.
On receiving a letter or email from the Income Tax Department, a common first reaction is to panic, and assume that something has gone wrong. However, before taking any action in haste, it is wise to go through it in detail and fully understand the purpose of the communication. In order to do that, let us study the different kinds of notices are commonly issued by the department and what they mean.
Scenario 1: Tax Return Filed
After an income tax return is filed, the department verifies it with various data already available to them. This process of verification is called an ‘assessment’. If there is a mismatch or the department is unable to verify the contents and needs further information, it may issue a notice. Earlier, these notices were sent by post, but now they are emailed and also uploaded on the e-filing portal. Some of the common notices issued by the department are as follows.
Intimation Under Section 143(1)
This is an intimation to record the preliminary verification of the tax return to check for any arithmetical errors or incorrect claims, etc., based on the data available with the department. The communication carries a tabular comparison between the income and tax amounts submitted by you and the department’s calculation. Accordingly, a refund or tax demand is determined. Typically, you should receive this within a few months of filing your tax return.
If you do not receive this letter, it means, your tax return acknowledgment will suffice as the department’s acceptance of your return.
What Should You Do?
If you receive this intimation, first check if there is any difference in the two tables, or whether the department has accepted the income and tax numbers filed by you. You can check this by scrolling down to the bottom of the sheet. In case there is no difference, no action is required. However, if the numbers do not match, you should carefully check the line item in which the amount considered by the department differs from what you have submitted.
If you disagree with the demand issued by the department, you need to log into your e-filing account and file a rectification, disagreeing with the demand, and upload the required documents (tax payment challan, other details, etc.) to substantiate your claim.
The time limit to file such an online response is 30 days from the date of the intimation sent to you. Alternatively, if you discover that the department’s calculation is correct and you had made an error, you can pay the additional tax and clear the demand.
Scrutiny Assessment Under Section 143(3)
This denotes the initiation of a detailed scrutiny or audit of the filed return. You will generally be asked to submit supporting documents within the date mentioned on the notice.
What Should You Do?
You will have to file a written response to the various points mentioned in the notice together with relevant attachments on your e-filing account.
The tax department will review the documents and send further communication for your action. Scrutiny assessments can be a prolonged affair, and it is advisable to check your online records from time to time to check whether any further questions have been posted.
At times, it may so happen that the date given on the notice has already passed or is too soon for you to take action. In this case, you should seek a formal adjournment of the submission date so that the department does not consider you to be in default.
The scrutiny ends with a formal assessment order being issued by the tax department. Depending on the outcome of the order (either favourable without any demand, or adverse with a tax demand), you may take further action, as advised by a tax professional.
In this regard, you may wonder how tax returns get selected for audit or scrutiny and whether there are any defined criteria used by the department for selecting returns for the audit. While there are no defined or documented criteria, there can be a variety of reasons for which a return is selected. For example, high-value capital gains transactions, relief claimed under a tax treaty or ownership of foreign assets held by you, and any mismatch between data received by the department from other sources and details filed by you. Recently, the Information Exchange Agreements signed between countries have also facilitated the availability of information to the Indian tax authorities. Apart from this, under the CAS system, the tax department routinely selects tax returns for scrutiny on a random basis.
Refund Adjustment Notice Under Section 245
This is basically an intimation from the department notifying the taxpayer of the current year’s refund claim being adjusted against a tax demand of a prior year.
What Should You Do?
You should carefully check the legitimacy of this action.
It is often observed that even where a rectification has been filed in the past, disagreeing with the earlier tax demand, the tax department may not have taken corrective action at its end and may have erroneously adjusted the current refund.
A response should accordingly be filed within 30 days, agreeing or disagreeing with the demand.
Notice Of Defective Return Under Section 139(9)
You might receive a notice mentioning that your filed return is defective and further, it will also clarify the defect.
What Should You Do?
In this case, corrective action must be taken, otherwise the filed return will become null and void, that is as good as not filed. A common reason is mismatch of TDS credit in the return when compared with Form 26AS. If a correction is warranted, you should file a revised return and upload that in response to the notice.
Scenario II: Tax Return Not Filed
If you have not filed a return in any year but have a history of having filed it in the past, you may get an email or a message from the department asking for the reason for not filing. In this situation, you should file a response under the ‘compliance portal’ in your online income tax account.
Some Useful Tips
To conclude, here’s a quick checklist for reference on what to do when you receive any communication from the tax department:
- Read the section of the Act under which the communication has been issued.
- Make sure that the notice is not time-barred.
- Carefully read the reason for the notice and reconcile it with the details in your filed return.
- Take stock of your financial transactions of the year to verify whether there is any error.
- Never miss the response timeline mentioned in the notice. If the time granted is not enough, file an adjournment with a reason.
- Always follow up and get a final order or a closure letter from the department after you file responses to the notice.
- Keep an eye on your online income tax account to avoid missing any communication from the department.
- Keep your profile, address and contact details updated on the portal.
Ishita Sengupta is Partner - Personal Tax, and Manavi Gupta is Associate Director - Personal Tax, at PwC India.
The views expressed here are those of the authors and do not necessarily represent the views of BloombergQuint or its editorial team.