A notice from Income Tax Department feels like a bomb dropped at your place, and you start finding ways on how to defuse this bomb. But, there is nothing to fear about the tax notice, if you have paid proper taxes. There are different types of notices, and In this case, we are talking about scrutiny notice. 143 is a number that can make you blush, but the case is otherwise here. Why? Scrutiny notice is issued under ‘section 143(2)’ of Income Tax Act. For its number, let’s call it ‘I Love You 2’ notice.
A scrutiny is just double check that what you have filed in returns is true and correct, and no income is understated or excess loss has been filed. All documents, supporting of expenses, books of accounts, etc are required to be submitted to the tax officer, within specified time.
Why were you chosen for sending the notice?
Moneyम्जी will share with you the reasons based on which you might be selected for tax notice:
- Mismatch in TDS claim and 26AS report: 26AS is your statement of tax credit. Here, Moneyम्जी recommends you to be sure that the one who has deducted your TDS, has actually deposited the same into the government’s account. Why?
The amount of TDS deducted from your income by your employer or bank gets credited in your 26AS form. If deductors have deposited your TDS to the government, the same gets reflected in your 26AS form, but, if they have not deposited your TDS or have deposited in wrong PAN, your credit won’t reflect in your 26AS statement.
Hence, if you claim more TDS than actually credited, you get caught under tax department’s eyes. - Too much fluctuation in profit or loss: Last year you declared your income as Rs 25 lakh on a turnover of Rs 1 crore (25%), this year you declared income of Rs 30 lakh on a turnover of Rs 2 crore (15%). Now, as you can see, net profit ratio decreased 10% from 25% to 15%. Won’t it create suspicion to the Income Tax Officer? They also consider profit ratios pertaining to your industry. Although, there can be genuine reasons for the fluctuation, but the tax department wants to check your books of accounts and hence, send you scrutiny a.k.a ‘I Love You 2’ notice under ‘section 143(2)’.
- Entering high value transactions: Tax department is a clever fox, who has good friends in the form of banks, mutual funds, registrar of property and other tax departments. These friends tell the Income Tax Department if you are a ‘Moti Aasaami’, who spent or invested high value amount.Transactions that get reported:
a) Deposits of Rs 10 lakh or more in saving banks account
b) Expenditure of Rs 2 lakh or more through credit card
c) Purchase of mutual funds of Rs 2 lakh or more
d) Purchase or sale of immovable property of Rs 30 lakh or more.
e) Information collected from various departments like VAT, Service Tax, Excise, etc. - Not declaring exempted income: Ok, this is important! There are incomes where you don’t need to pay taxes as they are exempt. But, in spite of that, you need to declare them in your income tax return. Like, you made long term capital gain on equity shares. Yes, it is exempt as Securities Transaction Tax is already paid, but still you should declare this income and then claim it as a deduction. Not doing so, you know, raises suspicion to Income Tax Department and they send you ‘I love You2’ notice (Section 143(2)).
- Danger from FD interest: Yes, FD’s interest! Tell me how much TDS does banks deduct from your interest? 10%, right? Now, what if your income falls in the 30 % tax bracket? Oops! You forgot to pay 20% tax remaining tax on interest from FD. And.. Now guess who’s on the way? Scrutiny notice!
- Fishy books of accounts: Well, your books of accounts can reveal a lot to the Income Tax Department. If your accounts show huge debtors and creditors, it catches the fox department’s eye. If unsecured loans are also high, again it is a ground for suspicion.
- Earlier Assessment Year: If there were additions in earlier assessment years, in excess of Rs 10 lakh, or Rs 10 crore in case of transfer pricing issue, on a substantial and recurring question of law or fact which is confirmed in appeal or is pending before an appellate authority may come under compulsory scrutiny.
There are many more reasons for scrutiny selection, but Moneyम्जी has brought to you the major ones. If you take care of few points and exercise diligence while transacting, you can be saved from the notice and lead a peaceful life.
For more queries, you can mail at [email protected].