Income tax Response to Notices

We will help you in answering the IT notices and will guide you so that in future you should avoid paying late taxes and penalties.

Penalties

Different penalties have been directed for various defaults committed by the taxpayer, under the Income Tax Act. Some of them are mandatory and a few are at the consideration of the tax authorities. Given below are the provisions relating to various penalties leviable.

Incorrect Form

In case an incorrect form has been used to file the returns, then it will be treated as “defective” and the assessee will be asked to file a revised ITR using the correct form.

Now, the taxpayer gets some time to amend the mistake. And the return must be filed within 15 days from the date of receipt of the intimation, as per Section 139(9). This time limit may be extended by the assessing officer (AO) on an application by the assessee. If the defect is not corrected within the stipulated time, then it will be treated as an invalid return. That is the same as not filing a return at all.

Therefore, the person will be facing all the penalties prescribed to not filing ITR. As well as, interest will get charged, u/s 234A, for the delay.

Under-reporting

If it is found that the actual income exceeds the income declared by the person. Or when no return has been filed despite income exceeding the basic exemption limit. Penalty at 50% of tax payable on such under-reported income shall be payable.

200% of the tax will get if under-reporting results from misreporting of income.

Late Filing

As per Section 234F of the Income Tax Act, if you file after 31st July (it was extended to 31st August for AY 2019-2020) but before December, a penalty of Rs. 5000 will be levied. For returns filed after December, the penalty will be Rs. 10,000.

However, to provide relief to small taxpayers, the IT department has stated a maximum penalty of only Rs. 1,000 will get levied. The condition is that your total income is less than Rs 5 lakh.

Penalty for Default

In case a demand notice u/s 156, has been issued to the taxpayer for payment of tax (other than notice for payment of advance tax). Then such amount, as per section 220(1), shall be paid within 30 days of the service of the notice at the place and to the person mentioned in the notice. If the taxpayer defaults in payment of any tax due, then apart from other penal provisions, he is treated as an assessee in default. For an assessee in default, the penalty will get levied as decided by the AO. However, the penalty cannot exceed the amount of arrears in tax.

Before penalizing, the taxpayer is given a reasonable opportunity of being heard. No penalty is levied if the taxpayer can prove that the default due to a good and sufficient reason.

Delay in filing the TDS/TCS statement

Every person liable to deduct tax at source is liable to furnish the statement of TDS, as per Section 200(3). It is termed as TDS Return. And every person liable to collect tax at source, as per Section 206C (3), has to file a statement in respect of TCS, i.e. TCS Return.

If a person fails to file the TDS/TCS return on or before the due date prescribed, then he shall be liable to pay, by way of fee, a sum of Rs. 200 for every day of the delay, as per Section 234E. This amount, however, shall not exceed the amount of TDS/TCS. A late TDS/TCS return cannot be filed this late fee.

Penalty in case of income from undisclosed sources 

The AO may make an addition to the income of a taxpayer as per Section 68, 69, 69A, 69B, 69C or 69D if the explanation about the nature and source of his income is not satisfactory.

The AO is empowered to levy penalty at the rate of 10% of the tax payable if any addition is made. However, no penalty shall be levied if this income has been disclosed in the ITR and tax paid, u/s 115BBE, on or before the end of the relevant previous year.

Fee for default in furnishing return of income 

The taxpayer, who is required to furnish ITR u/s 139 failed to furnish return of income within due date as prescribed under section 139(1) then as per section 234F, he will be liable to pay penalty same as delayed filing.

That is: 5000 if ITR is filed on or before 31 December of the assessment year. 10,000 in any other case.

However, if the total income of the person is less than Rs. 5 lakh then the fee payable shall be Rs. 1000.

Common Mistakes While Filing ITR

Listed below are some of the most common tax filing mistakes you can avoid.

Selecting an Incorrect Form

The appropriate ITR form for filing of returns must be selected. Failure can result in your return not getting processed by the income tax department.

Which form is to be selected depends on the sources from which income is earned in the financial year and the category.

All incomes that are taxable and/or tax-exempt are to be reported using the correct ITR form applicable. If the ITR is filed in the wrong type of Form, then the return will be termed as “defective”. Then, you will have to file a revised return using the correct form, within a certain time frame.

By using Palankarta, you do not have to worry about choosing the right form.

Not reporting all sources of income

A common mistake taxpayers make is failing to disclose all the sources of their income. The income must be disclosed whether it is taxable or exempt.

All incomes, not only the primary one earned from employment, profession or business, are to be reported. Whether they are savings account interest, fixed deposit interest, rental income from house property, income from short-term capital gains and any other source.

Remember, any income earned by a minor from interests, investments, etc. is taxable for the parent. According to the tax slab, an exemption up to Rs. 1,500 u/s 10(32) can be claimed when minor’s income gets clubbed with the parents.

Not reporting such incomes might attract a notice from the income tax department.

If you have switched jobs, make sure you report the income earned through your previous employer also. Not reporting such incomes might attract notice from the income tax department.

Providing incorrect personal information

Because all information will get recorded in the Department’s databank and may be verified, it is extremely important to enter the personal details correctly before filing your taxes. PAN number, name, address, mail id, phone number, date of birth, bank account number, IFS Code, etc. must be accurately mentioned. A minor mistake in these details means that you may miss your refund claim or some other important notifications. So check and re-check before filing.

Failure to Reconcile TDS with Form 26AS

It is important to compare ITR with Form 26AS before filing. Form 26AS includes all the income details, Tax Deducted at Source (TDS), advance tax paid by you, self-assessment tax, etc. TDS may have been deducted from your salary. You must verify the details of Form 16, issued by the employer, with the Form 26AS.

If the TDS is not reflected in Form 26As, your refund and tax deduction credit will be lost. The mismatched would lead to more tax being paid.

Not including exempt income 

Income tax laws require all income to be reported, whether exempt or not. Many types of incomes are exempt from tax. For example, long-term gains, dividends, etc. Although you do not have to pay any taxes on them, you still need to report them.

Also, though your gross total income may not exceed the basic exemption limit, you are to file ITR in certain situations.

Entering the details manually

There is a set format for filing returns. All details are to be entered in a particular format, in the rows and columns provided. If incorrectly put in this complicated format, the returns will have errors. This is where taking professional assistance from Palankarta is recommended.

TDS paid then no need to file ITR

Employers are required to deduct tax at source from salary, and interest income respectively. It is mandatory to file an income tax return when your annual income exceeds Rs. 2.5 lakh. And report the interest income in those returns. You should disclose the income on which tax has been deducted and claim credit for TDS in the income tax return.

The interest on deposits with banks is provided after deducting a flat tax rate of 10%. You can claim a deduction under section 80TTA up to Rs 10,000 for interest earned on your deposits. For senior citizens, a deduction of interest up to Rs 50,000, can be claimed u/s 80TTB.

Missing out on the Deductions that can be claimed

A deduction of up to. Rs 1.5 lakh in a financial year by investing in certain funds and schemes. But how much can be claimed from these schemes is complex. Similarly, most taxpayers are not aware of some expenses that are eligible as deductions.