Income Tax Return: Here is what you should do if you receive a notice from the income tax department

Last-minute tax filing increases the risk of mistakes, and if you have received a notice from the income tax (I-T) department, you handle the situation with care and promptness. Receiving a notice does not necessarily mean you have done something wrong; it could be a routine inquiry or require clarification on certain financial transactions.  

The Indian tax authorities can issue notices for several reasons, ranging from non-filing tax returns to scrutinizing the income reported in the tax return filed by the individual. 

If notice has been sent for non-filing, the individual is allowed to file their return within the specified time limit provided in the notice. An individual could file the tax return and submit a response explaining the delay in filing the tax return. 

Tarun Garg from Deloitte Haskins & Sells LLP says, “In case the reason for notice is for scrutiny of the income tax return filed already, the notice lists certain information/ documents to serve as proof of the particulars reported in the tax return. For instance, the notice could ask for details of interest earned by an individual. An individual could submit an interest certificate issued by the bank/ financial institution as proof of the interest income. On the other hand, if the question is on capital loss claimed on the sale of property, the notice could ask for a copy of documents evidencing purchase price, sale value, etc." 

Nowadays tax notices are being issued via the income tax e-filing portal, making tracking the notices and responses filed for such notices easier. So, you can follow the steps mentioned below if you get a tax notice. 

Don’t panic: The first and most crucial step is to remain calm and not panic. Receiving a tax notice might be intimidating, but it's essential to approach the matter rationally. Hence, understand the reason behind the tax notice. The income tax department, in their notices, explains the whys and what's of the root issue in detail along with a deadline. 

Verify the notice’s authenticity: Ensure that the notice is genuine and not a fraudulent attempt to obtain sensitive financial information. "Genuine income tax notices usually have the taxpayer's Permanent Account Number (PAN), a unique Document Identification Number (DIN), and other essential details. You can cross-check the authenticity of the notice by visiting the official Income Tax Department website," said Avinash Shekhar, Founder and CEO, TaxNodes. 

Understand the reason for the notice: Carefully read and understand the notice's contents to determine its issuance. It may pertain to underreported income, discrepancies in tax payments, non-disclosure of certain financial transactions, or any other tax-related matter. 

Collect all relevant documents, such as income statements, bank statements, investment proofs, and tax return filings, to support your case when responding to the notice. Raghuram Trikutam, CEO of Descrypt, said, "Compile all relevant documents you need to submit against the notice. If your tax returns are not filed accurately (and you receive a notice correctly), ensure you pay the dues as described under section 156 of the Income Tax Act. If you are sure that you do not have any dues to be paid, prepare a response to the Income Tax Department, including information such as your name, PAN, address, and Assessment Year (if it's for FR 2022-23, the AY would be 2023-24) and supporting documentation with a clear explanation on the dues having been paid." 

“Submit the above response to the income tax department, and in case you cannot do so by the given deadline, request for an extension by filling Form 13. Be sure to pay your dues on time, as noncompliance can lead to interest/penalties and, in extreme cases, prosecution. If you have any questions regarding the notice or your calculations, refer to a tax professional/chartered accountant," added Trikutam. 

For your records, maintain copies of all communications, including your response and any documents submitted. 

Seek professional help: Draft a comprehensive and clear response addressing the concerns raised in the notice. Be honest and transparent in your response, providing all necessary explanations and supporting documentation. "If you are unsure how to respond to the notice or the complexities involved in your tax matter, consider seeking assistance from a qualified tax professional, such as a chartered accountant or a tax lawyer. They can guide you through the process and help you prepare an appropriate response," said Shekhar. 

Respond within the stipulated time: You must adhere to the deadline mentioned in the notice for responding. Failing to respond within the given time frame may lead to further complications, including potential penalties. It is essential to look into these notices carefully and respond to the tax authorities to avoid the levy.  

After submitting your response, follow up with the Income Tax Department to ensure they have processed your case and addressed all matters adequately. 

BT take 

Remember that cooperating with the tax authorities and providing genuine and accurate information is essential. Failure to comply with the notice or attempting to provide false information may result in penalties or legal consequences. It’s always a good idea to be proactive with your taxes, maintain accurate records, and file your tax returns diligently to minimize the likelihood of receiving an income tax notice in the first place.