Finance Minister Nirmala Sitharaman while speaking at the 164th Income Tax Day celebrations said that, in situations where assesses have either not submitted income or have underreported income, the income tax department has given one lakh notices.

Without going into any detail, she stated that the IT department will finish these notices by March 31, 2024 and that all of these instances involved old returns that were submitted four to six years ago.

“One lakh notices are sent where information is available that income is more than what you have filed, or there are reasons to believe that income has been understated or where they have not filed it and information is there that they should have filed it,” Sitharaman said.

“I want to convey that these are not just being thoughtlessly sent and I have been assured by the chairman CBDT (Central Board of Direct Taxes) that by March 2024, this entire block will be cleared,” Sitharaman added.

Later, officials verified that the letters were sent over the course of the previous 14 months, primarily to those with yearly incomes exceeding 50 lakh rupees.

Officers are permitted by income tax legislation to revisit assessments that are up to six years old.

Sitharaman further said that the CBDT in May 2023 completed a scrutiny assessment of the 55,000 notices which they had sent pursuant to a Supreme Court judgement.

“The board today is not sitting over notices which have been issued and it is not a place where people are gaming the system; there is a clear-cut approach,” Sitharaman added.

She added that earlier taxpayers had to keep records for 10 years but now tax assessment cannot be opened after six years.

“In 4th, 5th and 6th year, they (tax officers) reopen the assessment only under certain situations,” Sitharaman said.

According to FM, technology is the solution to the majority of issues. It has aided in the detection of tax fraud and is now assisting in guaranteeing taxpayers of a fair, objective, and transparent income tax system.

7% of the assessees who filed income tax returns this year are new taxpayers, according to CBDT Chairman Nitin Gupta, and their number is anticipated to rise further by July 31. He further stated that all income tax returns (ITRs) are being processed by the income tax division in an effort to deliver refunds by the beginning of the next month.

An Assessee may receive the Income Tax notice for the following reasons –

Discrepancies in Reported Income

The Annual Information Statement (AIS) summarizes a taxpayer’s financial transactions, including deposits, dividends, securities, mutual fund dealings, foreign remittances, and savings accounts. Reviewing this information before filing an ITR is crucial to ensure accuracy and avoid discrepancies, as minor omissions can trigger IRS inquiries.

Non-filing of ITR

The tax department conducts e-campaigns to notify taxpayers who have not yet filed their income tax returns for a specific assessment year. If you have missed the deadline for filing your original or belated return of income, you can still file an updated return within 24 months from the end of the relevant assessment year. However, along with the updated return, an additional 25% or 50% tax must be paid, depending on the delay.

High-Value Transactions

You can get a letter from the I-T department if your reported income doesn’t match up with high-value transactions like property purchases or sizable credit card payments. The department has the right to ask for an explanation of where the money came from for such financial actions.

Income variation or inconsistency in advance tax payments

Inconsistencies in your advance tax payments or sudden fluctuations in your income can prompt the income tax department to issue a notice asking for an explanation for these deviations. Additionally, the department may ask you to deposit the appropriate advance tax if required.

Bogus Deductions and Claims

Claiming deductions like House Rent Allowance (HRA) or Section 80C without proper reflection in your Form 16 issued by your employer may attract the attention of the tax department. They may issue a notice to investigate the authenticity of such claims.

Mismatch in TDS Credit

To avoid discrepancies in tax returns, ensure no TDS credit claims are mismatched with the amount in Form 26AS. This can lead to income tax department notices, disallowance, and delays. Cross-check the TDS credit with the Form 26AS amount before filing and rectify any discrepancies.

If you receive a notice regarding your income taxes, take the time to comprehend it. Review the notification in detail and, if necessary, seek advice to ensure a suitable response. Ensure accuracy and completeness of your tax filings by being proactive and diligent.

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