8 reasons why you can expect income tax scrutiny notice?

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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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