A Comprehensive Guide On How To Respond To Income Tax Notice

What Is An Income Tax Notice?

An Income Tax notice is sent to a taxpayer to inform them about any inconsistency, error or lack of information which may have been found during the assessment of their income tax returns. When you receive a notice from the Income Tax Department, you are required to respond to the notice within a stipulated time frame. 

Reasons Behind Income Tax Notices

We have listed some common reasons why you may receive an income tax notice. They are:

• You have failed to file your income tax return.
• The income tax return filed is inaccurate.
• If you have failed to declare any income.
• If you have filled in the incorrect form to file your income tax return.
• There are inconsistencies in the reported amount of TDS.
• You have failed to submit all required paperwork for ITR.
• If you have investments in your spouse’s, however, you failed to report it on your ITR.
• If the income tax officer decides to examine your income tax return due to any reason.
• If you have received long-term capital gains from investing in stocks but not reported in ITR.
• If there were high-value transactions within the financial year that were not included in your Income Tax Return.

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Types of Income Tax Notices

The income tax notice can be of different types. It is important to know the type to be able to respond to your notice appropriately:

Section 131: Under this section, the Assessing Officer or Income Tax Officer may ask you to meet face-to-face in an official meeting. With the notice, the officer will be checking for evidence of any chances of tax evasion or unreported income. This notice is given out when the taxpayer is highly suspected or doubted.

Section 139(9): This notice is sent by the Income Tax Department due to a “Defective Return”. Following this notice, the income tax officer will ask you to correct your Income Tax Return filing within a grace period of 15 days.

Section 142(1): The Assessing Officer will request further information regarding your Income Tax Return. If you do not manage to respond within the deadline, then you will get another notification within the same clause.

Section 143(1): If there is any error in calculations or inaccuracy found within the ITR, then a notice under this section will be sent to you. This notice will include a gist of details of what was submitted within the ITR.

Section 143(2) and (3): In this notice, the IT Department informs you that your books or records will be sent for an in-depth examination for verification under Section 143(2). This is done to cross-check the accuracy of the claims within the ITR. The in-depth examination conduction is done under Section 143(3).

Section 148: You will receive this notice if the Income Tax Officer believes that you have failed to report any taxable income if they suspect that you are attempting to evade taxes or if the Assessing Officer finds any underreported income.

Section 156: This notice is issued when the Income Tax Department will request you to pay taxes, interests or penalties which are due. You will be given a time frame of 30 days within which you will be required to complete the payment.

Section 245: If there are pending tax liabilities from previous years which have not been cleared out, then the Income Tax Department will send this notice to you and deduct priori liabilities from the income tax refund of the present year.

Read Also: A Complete Guide to Tax Filing for Foreign Companies in India

How To Respond To Income Tax Notice

To respond to any notice from the Income Tax department, you need to do the following steps on the income tax portal online:

Step 1: Visit the website incometaxfiling.gov.in and log in.

Step 2: Click on “e-proceedings” under the “pending options” menu. It will consist of notices which have been issued to you and a detailed overview of all actions taken in relation to it.

Step 3: Click on the links which have been sent over email. The messages related to the proceedings will be visible.

Step 4: Click on “Submit Response” under the “Response” tab for each email which requires a response. Depending on the requirement, choose between “partial response” and “full response”.

Step 5: Open the notice you will receive and then click on “Submit Response”

Step 6: Within the textbox, write a detailed response of not more than 4000 words in the area near remarks/response.

Step 7: You will be required to upload a cover letter or any other annexures as proof.

Step 8: Tick the checkbox to agree that all information you provided is accurate. 

Step 9: Lastly, you have to e-verify your identity by clicking “yes” along with a digital signature.

Is It Mandatory To File Income Tax Return?

It is mandatory to file your income tax return before the stated deadline for the following reasons:

• If you earn more than 2.5 lakhs per annum, which is the basic exemption limit.
• If you need a refund for excess income tax which you may have paid.
• If you have financial assets outside the country.
• If you are an NRI and have an income of more than 2.5 Lakh Rupees per annum in India.
• Foreign companies who are making cross-border payments in India.   

If you file your ITR late, then it may result in a financial penalty. Not filing your ITR is a punishable offence under Section 276CC of the Income Tax Act and can lead to imprisonment of up to 7 years. The period of imprisonment depends on your tax liability.

Read More: The obligations on Non-Residents Of India To File Tax Return For The Year 2024

Conclusion

It is necessary to respond to income tax notices as soon as possible, to ensure you remain in compliance with law and order. Failure to respond may result in strict action from the income tax department. 

Are you looking for an income tax consultant in Gurgaon to personally guide you through the process? Then contact DSRV India, one of the top chartered accountant firms in Gurgaon.