8 reasons why you can expect income tax scrutiny notice?
Circumstances under which an income tax scrutiny notice can
be issued to you are as follows:-
Reason #1 – You have not filed your return
Every individual earning more than Basic Exemption Limit
i.e. Rs. 2,50,000/- p.a. (Basic Exemption Limit has been enhanced from Rs. 2
lakhs to 2.5 lakhs in the last union budget for current financial year) needs
to file tax returns compulsorily, even if the tax is already deducted (TDS) and
paid . So if you have not filed your returns for past few years, then you can
expect a notice from IT department very soon. You might have not filed it due
to your laziness or simply because you didn’t get the time, but understand that
this mistake can cost you a lot especially when you have some any kind of tax
evasion!
Reason #2 – Interest from FDs or Savings A/C
This is one big reason which can apply in most of the
investors’ case. Generally banks deduct 10% TDS on the deposits interest by
default, but you are suppose to pay any additional tax if applicable depending
on your income tax bracket. There is a big myth that one does not need to pay
any tax if TDS is cut by the bank. For example if you are 30% tax bracket and
you have Rs 5 lacs FD in bank and imagine 8% is the interest rate, which means
you get a Rs 40,000 interest from the FD , now the bank will deduct the 10% TDS
(which is Rs 4,000) and pay to the govt , and give Rs 36,000 directly to you .
Now actually tax you had to pay was 30% to govt, which means that at the end of
the year you need to pay additional Rs 8,000 in tax. If you have not done this,
then you might be inviting trouble for future.
Reason #3 -Sudden drop in Income
Do you know that if there is a significant reduction in your
income from last year, then it may cause suspicion and you might invite a IT
scrutiny. This is more applicable in case of businesses and traders, because
their income is highly volatile. However in case of salaried people, this is
not a big issue because in general there is no huge drop from the last year
income. Let me give you an example – Imagine Ajay, who runs a business and
earned Rs 15 lacs in a year and paid his taxes properly in year 2014. Now in
2015, he files his income tax returns with Rs 12 lacs income or Rs 17-18 lacs
income, this looks natural overall, but imagines he files his return declaring
his income to be Rs 3.5 lacs, then suddenly it raises some eyebrows and the IT
department might want to talk to you. It might happen that you are not doing
any tax-Chori, but IT department might want to enquire.
Reason #4 – Claiming Higher refund amount
If you have filed your returns claiming a high refund in a
particular year, there are chances that you might get a scrutiny. This is
because firstly, it’s a higher amount to be refunded back to you, so naturally
tax department might want to have a look at data and might question things
(otherwise everyone will start asking for refunds without solid reasons), and
secondly – the refunds are generally a lower amounts because of the mismatch in
your planning or some calculation and any big tickets will attract eye balls .
So if you have paid Rs 2 lacs tax, and you are asking for Rs 15,000 Refund or
Rs 35,000 refund . It looks fine. But if you ask back 90,000 refund, that might
attract scrutiny.
Reason #5 – Mismatch in TDS credit
You need to check & reconcile your form 26AS with all
the taxes as paid on your account. It should ideally not happen that the TDS
amount you are claiming in your income tax return and the TDS actually updated
in your form 26AS are different . That’s why before filing your returns, it’s
an important thing to check your 26AS, make sure it’s updated properly (check
with your employer who has paid TDS, check with banks who paid TDS on your
interests). Only once everything looks fine, then claim the TDS amount. Don’t
assume things like (my employer must have paid TDS and updated it properly) .
Reason #6 – Non Declaration of Exempted Income
There are various income’s on which you don’t have to pay
income tax , but they must be still mentioned in the income tax return . Things
like your long term capital gains tax from equity/dividends received on equity
shares of Indian companies/Saving bank account interest up to Rs. 10000/PPF
interest , or let’s say gifts you receive from your parents/relatives .. These
are some of the things which are exempted from tax, but that does not mean you
don’t have to tell the income tax department about it and you should anyways
not hide it because there is no reason for it. I know a lot of people might be
feeling – “Since it is already exempt, then what is the need of declaring it, I
have never done it for last so many years!”
. So now as you know make sure you take your income tax filing very
seriously, because till the time you don’t get IT scrutiny it’s not an issue,
but the day you will get it, you will know it’s a pain
Reason #7 – Taking double benefits due to change in Job
Many times salaried employee who changed job during previous
year gets multiple form 16 & fails to declare income from all the employers
& calculate and pay the due taxes, if any. It may arise on account of
certain deductions & benefits given twice. Many times, it has been observed
that when people changes their job during
a year they forgot to inform about their previous income to their new
employer or if at all they have declared it, they forget to make sure that it
has been duly incorporated while calculating their tax liability and arriving
at a TDS figure and because of this failure, new employer will deduct taxes on
the income which will go from their side by giving and allowing all the
deductions like 80C/section 10 etc. all over again (as the previous employer
had already factored the same while paying TDS) and also basic exemption limit
and initial tax slabs benefits are also given again resulting in lower
deduction of taxes.
But due to lack of this technical knowledge along with a
pressure and joy of a new job this goes unnoticed and there is a shortfall in
taxes which was supposed to be deducted and paid to the government; so beware
when you change your job and inform previous employer income duly to your new
employer to avoid getting an IT notice.
Reason #8 – High Value Transactions
If you have executed high value transactions either for
investments or spending then chances of you getting the notice from IT
Department are very high. For e.g. your credit card usage of more than Rs. 2
lakhs p.a./ investing in FDs for more than Rs. 5 lakhs/ depositing more than
Rs. 10 lakhs in your bank account/ investing more than Rs. 2 lakh in MFs or Rs.
1 lakh in Shares or buying or selling property over Rs. 30 lakhs. All these
transactions are reported to the IT department under Annual information Returns
filed by respective companies and may attract an enquiry ranging from simple to
exhaustive by IT department.
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