How to avoid notices from Income Tax Department?

“Prevention is better than cure”, Well ! All of us have heard this quote very often, taking preventive measures to avoid notices from department is definitely a better way-out than curing the defects with consequences. Planning your taxes well will elucidate the matter than thinking to evade taxes. “Tax Planning is better than Tax Evasion” Gone are the days where income tax department would not cross-verify the transactions undertaken by you to a greater extent . Now, every transaction is cross verified as the department has integrated database which allows them to cross verify almost all the transactions. Income tax department collects various information through various ways like Annual Information Return (AIR), Statement of Financial Transactions (SFT), Centralized Information Branch (CIB), TDS/TCS Statement, Securities Transaction Tax (STT), CBDT has also entered into MOU with various entities for exchange of information. Considering this, the need to ensure that the information filed with the income tax department is accurate is essential. Otherwise, the interrogation of the department would be a free call and would require the department to issue notices. Here is a list of things you need to take care to ensure you do not invite notices from Income Tax Department.

Reasons for Notices

Description and Solution

Non-filing of income tax return
  • Income tax returns are to be filed by every person whose gross total income is more than the basic exemption limit.
  • Any person who owns any foreign asset or has a signing authority in overseas bank you shall be required to file your income tax returns irrespective of the annual income.
  • If your employer has already deducted TDS, ensuring filing your return would be a good precaution.
  • Hence, file your returns to avoid troubles with respect to receiving notices.
Mismatch in Form 26AS, Form 16 or 16A
  • The TDS receivable amount should match the TDS appearing in From 26 AS and Form 16 or 16A.
  • In such case of mismatch, the chances are high thatyou receive a notice from the income tax department. Therefore, always cross verify your 26AS and Form 16/16A and match them to avoid notices.
Non-disclosure of Income
  • Every person is required to mention each income earned in the financial year in the income tax return. People usually ignore interest income on fixed deposits, savings account, and recurring deposit this would lead to non-disclosure and underreporting of income and huge penalties would attract. Hence, disclose your income by yourself before the department catches you to avoid notices.
Defective Return
  • An ITR is a statement of income given by the taxpayer to the Income Tax Department. At times, because of lack of knowledge or out of ignorance, people end up filing wrong information in ITR form. Sometimes, they may skip some mandatory information or commit an error in the return form. If the income tax return is not filled accurately, the department may issue a notice to you under Section 139(9) and inform you to file a revised ITR after correcting the error.Hence, re-check before you file and ensure you do not file with defects
Random Notices
  • Sometimes department also randomly picks up for scrutiny assessment. In such cases, the  queries raised in the notice should be addressed and provision of requested documents should be made available to the Income Tax department so they can complete their checks and close the case.
Entered High Value Transactions
  • In case you have entered into high  value transactions reported in accordance with section 285BA . You have high chances of getting notice as department tracks them through various statements. Hence, being vigil before entering in such transactions is a necessity and ensure that legally valid routes are taken for such transactions.
Non-Disclosure of Exempt Income
  • Many people think that since income is exempt and no taxes are to be paid on exempt income we need not disclose it to the income tax department. It is necessary to disclose to the income tax department in the income tax return the exempt income If any person has exempt income but do not disclose it in the income tax return this would be a call for the notices to be issued by the income tax department. Hence, declare exempt income in income tax returns would not arise such consequences
Volatile Income/Losses
  • Inconsistency year to year in showing the profitabailility and losses would make the income tax department skeptical and have check on the inconsistency by issuing notices. Hence, income tax department may issue notices to seeking various details like financial statements such as Profit and Loss account, Balance sheet, Bank accounts and capital accounts. Genuinely proving the transactions with required documents would solve the problem.
Settlement of refund against remaining dues and tax payable
  • If there are any dues in the form of tax, penalty, fines or any other sum payable pertaining to earlier years and if refund is claimed the assessing officer may send a notice as an intimation stating that the dues will be adjusted against income tax refund claimed. Hence, it is advisable to pay your dues else the refund would be adjusted against the taxes payable
Mismatch of details with various forms
  • In case you have filed both GST returns and Income Tax Returns and the turnover declared at both  places do not match each other the department may issue notices. Hence ensuring the turnover declared in income tax and GST department without differences would not give rise to doubts to the officers and notices can be avoided
Claiming deductions without a valid transaction
  • Many people claim deduction in order to avoid taxes. When department notices suspicious deductions claimed it might issue notices seeking documents for the deduction claimed to verify the genuiness. Ensuring deductions are claimed with required documents would avoid notices.
Apart from the above details we should ensure that details furnished with income tax department is in line with all the forms furnished through various entities such as banks, foreign exchange dealers, NSDL/ CDSL etc vide statements like Annual Information Return (AIR), Statement of Financial Transactions (SFT), Centralized Information Branch (CIB), TDS/TCS Statement, Securities Transaction Tax (STT). Receiving notices is not a matter to be worried on .Providing department the right details would elucidate the issue. In case the assessing officer who issued notice is not satisfied with the information furnished by you, you can still go to higher authorities with an appeal and get your matters sorted. Tax planning can help you save your taxes. You need not think of tax evasion, tax planning is the best  way to be  safe and save your taxes.

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