Common Mistakes which attract Income Tax Notices

By CA Rahil Mehta

Increase in Income Tax Notices

The Income Tax Department has launched a drive to ensure greater tax compliance. Thousands of taxpayers having discrepancies in their tax returns or their TDS details are being served notices.The tax authorities now have an integrated database on taxpayers and can track all financial transactions.So it is very important that care be taken

while filing the Income Tax return to avoid getting Notices from the department.

Not Quoting PAN or quoting incorrect PAN

The most common error occurs while quoting PAN.Care must be taken to ensure correct PAN is quoted as the TDS credit is reflected as per the PAN of the assessee.PAN is mandatory for high value transactions and its absence attracts 20% TDS deduction which is not even credited to your account.Quoting wrong PAN can attract a penalty of up to Rs. 10,000.So always ensure that PAN is correctly quoted.

Not verifying TDS Credit with Form 26AS

Form 26AS provides details of the tax paid and by an individual and TDS credited to his account during a financial year.Credit will not be available on the TDS deducted but not reflected in Form 26AS, so you must ensure that the TDS deducted by your employer, bank or any other deductor is mentioned in your Form 26AS.Verify whether all the investments reflected in 26AS are duly mentioned in your Income Tax Return as any mismatch will lead to a notice from the department.

Expenses & investments higher than Income Declared

Financial and Banking Institutions report high-value transactions to the CBDT which the Income Tax Department received on the basis of your PAN.The CASS matches this information with the returns filed and promptly issue a notice if there is a mismatch in the income you have declared and your investments and spending.

Not filing Return for income > 2 lakh

It is mandatory to file Income Tax Return if your gross taxable income before deduction is more than 2 lakh.Non-filing of return can attract a penalty of up to 300% of the outstanding tax. But even if you have paid the tax or if there is no tax liability, you have to file the return if gross total income exceeds basic exemption limit.

Not declaring salary received from previous employer

Tax database of the Income Tax Department has now been integrated and will track the Salary received from your previous employer and if TDS has been deducted the details will be reflected in Form 26ASThe CASS will immediately flag the discrepancy if you don’t declare the salary received from previous employer. A penalty of up to 300% of the tax evaded can be levied for this discrepancy.

Misusing Forms 15G and 15H

Banks deduct TDS on the deposits if the interest income exceeds Rs. 10,000 in a year.To avoid TDS, one can submit Form 15G or 15H.This is applicable only for assesse whose gross taxable income is less than the basic exemption limit, currently Rs. 2 Lakhs.However, to avoid TDS, if you give a wrong declaration in, you can get a notice from the tax department. Submitting wrong declaration can invite a penalty of Rs.10,000. Splitting the deposits in different banks or branches to avoid TDS won't help as the PAN gives you away.

Not declaring interest on deposits and savings

The interest earned on bonds, fixed deposits, recurring deposits and savings accounts is taxable. Banks and Financial Institutions deduct TDS on such interest and it gets reflected in form 26AS so the interest should get reflected in your tax return. Not declaring the interest income will definitely attract notice from the Income Tax Department.Don’t forget to take benefit of the deduction of up to Rs.10,000 on the interest earned on your savings bank account.

Not responding to the notices from Tax Department

Finally, never ignore the notices received from the Tax Department.Not responding to the notice will compound the interest and penalty on the amount of your pending tax liability.Moreover the Department can also go for Best Judgment Assessment and pass a exparte order. In simple terms this means that the Department will themselves determine your tax liability and raise a demand notice which will not be favourable to you.

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