Introduction:

As salaried individuals, we diligently file our income tax returns every year, claiming deductions and exemptions as per the provisions of the tax laws. However, the Income Tax Department has recently intensified its scrutiny of tax filings, leading to an increase in notices being sent to salaried taxpayers. Recently, the Income Tax department has sent notices to around 1 Lakh taxpayers suspecting excessive deduction and exemption claims. These notices demand documentary proof for the claimed deductions and exemptions.

With integration of data from multiple sources, income tax authorities have access to a lot of taxpayers information. It includes data from share brokers, crypto exchanges, employers, bank statements, etc. Using data analytics and AI, income tax notices are being sent to assessees based on the risk parameters. Hence, it is very important to not miss out on reporting any income or required disclosures.

In this blog, we will discuss the Do’s and Don’ts to help you avoid such notices and guide you on the appropriate steps to take if you receive one.

Do’s to Avoid Income Tax Notices:

Keep Accurate Records

Ensure you maintain comprehensive records of all financial transactions, including investments, expenses, and deductions claimed during the year. Accurate documentation (including the receipts) will help you support your claims in case of any scrutiny by the tax authorities. A good practice is to keep all the documents in a folder while filing the ITR, so it is handy in case of any notice from the IT department.

File on Time

File your income tax return well before the due date to avoid last-minute mistakes and errors. Filing early allows you ample time to review your return and rectify any discrepancies. In case you understand after filing of any discrepancy, you can file revised return under section 139(5) to avoid IT notices.

Verify Form 26AS

Before filing your return, verify the Form 26AS, which provides details of taxes deducted at source (TDS) and tax credits available against your PAN. Cross-check this information with your records to ensure accuracy. In case of any discrepancy, communicate with the TDS deductor and get it corrected.

Scrutinize your Bank statements

In case you forget any significant transactions undertaken during the year, a quick scan of your bank statement might remind you of the same.

Verify AIS and TIS details

Annual Information Statement (AIS) and Taxpayer Information Summary (TIS) are available on the income tax portal which provides you information about the transactions undertaken during the year which might be required to be reported in the Income Tax Returns to avoid IT notices. As it was introduced recently by the IT department, it is also possible to provide feedback on the data available in these statements to get it corrected. You can learn more about AIS and TIS in this blog – Interpreting AIS and TIS in Income Tax Portal

Claim eligible and legal deductions only

Only claim deductions and exemptions for which you are eligible under the Income Tax Act. Avoid indulging in any fraudulent activities or bogus deductions. In case of any doubt or missing documentation, connect with an expert to understand the risk involved and claim deductions accordingly.

Consult a Tax Professional

Seek advice from a qualified tax professional or financial advisor to ensure that your tax return is accurate and compliant with the latest tax laws and regulations. IT notices might turn out to be more expensive than the fees of a professional. With changing rules and regulations, it is important to seek advice from a tax professional if any transaction outside of the normal income has been undertaken.

Don’ts to Avoid Income Tax Notices:

Don’t Conceal Income

Never under-report your income or engage in tax evasion. Concealing income can lead to severe penalties and legal consequences. In case of any doubts regarding reporting of any of the transactions, consult with an expert to avoid Income Tax Notices.

Don’t Ignore Notices and communications from IT department

If you receive a notice from the Income Tax Department, do not ignore it. Ignoring the notice can lead to further complications. Respond promptly and seek professional guidance if needed. Also, regular communications by the Income tax department can help you keep compliant with the Income tax Act.

Don’t Rely on Unverified Information

Avoid taking tax advice from unreliable sources or unverified websites. Rely on official government portals or consult qualified professionals for accurate information. In case of any misrepresentation from your end, it might lead to Income tax notices.

Don’t Delay Responses

If you receive a notice seeking documentary proof, respond within the specified timeline. Failing to do so might lead to adverse actions from the tax department. Income tax authorities have been empowered by the Income tax act, to pass one sided judgements in case of non cooperation from the taxpayer.

What to Do When You Receive an Income Tax Notice

Do not panic

Receiving a notice can be unnerving, but staying calm is crucial. Review the notice carefully to understand the specific requirements and reasons for the inquiry. Income tax authorities may also send notices to a large group of people in anticipation of any non compliance. Income tax notices do not necessarily lead to payment of taxes.

Check authenticity of the notice

Starting 1st October, 2019, every communication by the Income Tax Department is required to bear a unique Document Identification Number (DIN). The same can be verified on the Income tax website.

Gather Documentation

Collect all the necessary documents and evidence to support the deductions and exemptions claimed in your tax return. Ensure they are organized and readily available for submission.

Seek Professional Help

If you are unsure about how to respond to the IT notice or require assistance with preparing the response, consult a tax professional immediately. Timely connecting with a professional can help you plan better in responding to the Income Tax Notices

Respond Promptly

Timely response to the Income tax notices is essential. Ignoring or delaying the response can lead to escalated actions from the tax department. You can also ask seek time from the tax authorities

Conclusion

As salaried individuals, it is essential to be vigilant while filing income tax returns and claiming deductions and exemptions. By adhering to the Dos and Don’ts mentioned in this blog, you can significantly reduce the chances of receiving income tax notices. In case you do receive a notice, take the appropriate steps, gather required documentation, and seek professional advice to respond effectively. Remember, compliance and accurate record-keeping are the keys to a hassle-free income tax filing experience.

Disclaimer

Every individual will have different applicability of tax laws based on various parameters like age, income, etc. Consulting a tax advisor or certified financial advisor is advisable for personalized financial advisory and assistance in your tax planning journey.

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