Got an Income Tax Notice … Now What?

A Step-by-Step Guide on Handling a Tax Notice

 Kindly Note: A notice from Income Tax department does not necessarily mean you have done something wrong. You can receive a notice inspite of already having filed your return and paid your taxes. Do not worry. Keep calm. Here’s how you should go about handling an IT notice.

Under IT Radar? Do Not Press Your
Panic Button Yet. Here’s Why.
Tax practitioners have suggested that there has been
a constant rise in the income tax notices sent by the IT department,
over the past few years. But a great percentage of the notices sent
are nothing but simple queries for tax payers so as to improve overall
accountability and monitoring of the financial transactions.

1). Let the Experts Come to Your Rescue!

To start with, you need to ask yourself if you understand the nuances of taxes. If not, then do not hesitate to call your financial advisor or hire a tax practitioner. Yes, there will be extra costs involved when you take professional help but then isn’t it all worth it considering you get a skillful solution for your case while saving your time.

2). Do Not Panic. PAN it!

First of all, make sure that the notice is really meant for you. Always check the PAN number because IT department issues a notice primarily on the basis of PAN (rather than on taxpayer’s name). You should also check the assessing officer’s details such as his name, designation and official address.

3). But Why Me? Exactly … Ask Yourself, Why You!

Okay. So, now when you know the notice is for you, you have to discover why is it sent to you. It might be for a number of reasons such as return details verification, direction to pay due taxes, mismatch in income and expenses, deliberate non-disclosure of assets and income or your recent involvement in a high amount transaction. The department can send a notice under various sections such as 131 (1A), 142(1), 147 and so forth. Here’s a tabular representation of what each section really means.

Sections under Income Tax Act What it Means?
Section 131 (1A) Income has been concealed
Section 133 (A) Scrutiny of documents
Section 139 (9) – Defective return Defective return
Section 142 (1) Enquiry before assessment
Section 143(1) Tax found payable/refundable on the basis of return
Section 143(2) Regular assessment
Section 147 Income has escaped assessment
Section 148 Assessment/reassessment of chargeable income

4). Do Not Delay. Deal with it Timely!

A notice doesn’t need you to lose sleep over it but it’s better to respond to it promptly. Try to avoid last minute haste. Ideally, you should not take more than 30 days to reply back. The last thing you want to do is failing to respond to the notice within the stipulated time or not responding at all. In either case, you will be considered as a taxpayer in default by IT department and would become liable to pay interest and penalty, which can shoot up to as high as Rs 10,000 depending on the case.

5). Get Hold of the Papers You Need

Be proactive. Figure out a list of all documents you might need for compliance. If not sure, consult your tax doctor. The relevant documents might include bank statements, bills, vouchers, payslips, rent receipts, etcetera.

6). ‘Your Honour. I Rest My Case!’

Still think you got the notice for wrong reasons? You have the right to knock the doors of court, the Income Tax Appellate Tribunal or the Commissioner of Income Tax. Technically it is called as an appeal against the notice you received. All you need to do is state the purpose of the appeal in form 35 and the basis on which you are making the appeal. Kindly note, your appeal may or may not be accepted by the concerned authority. There are additional costs to incur if the final decision doesn’t turn in your favor. So you should go ahead only when you are sure as hell that the notice you received is unjustified.

Here’s the key point. You have to understand that by sending a notice tax authorities do not intend to bother you. They are just doing their job, which is to make sure you are doing yours honestly. In other words, they are checking your compliance with the tax norms. And if you happen to be an honest tax payer, you need not worry over it!

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