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How to deal with Income Tax Notice?

Income Tax Notice

My one of the relative recently got Income Tax Notice via e-mail. He got panic and was unable to sleep for whole night. In the morning when he read that e-mail again, he encountered that E-mail was just reminder email for filing income tax return:). Well point here is “No one of us wants to hear from Tax man today”. Getting Income tax notice is the worst nightmare for taxpayer today.

Why Tax payers get Income Tax Notice?

Return not filed or Delay – In case your employer has already deducted tax and you have not filled income tax return you are likely to get income tax notice asking to file Income tax return. You need to respond to this notice in time otherwise you may get penalized.

Mismatch in TDS amount – TDS (tax deducted at source) figure mentioned in your form 16 is different compare to tax credit statement form 26 AS. You have filed income tax return without checking this detail. Different in TDS amount in 26AS may be due to your employer might not have deposited tax or deposited amount against different PAN number. Under this case you need to file rectified Income Tax return.

Not Reporting Additional Income – You are likely to hear from Income tax department if you have forgotten to declare incomes like interest from fixed deposit or any other source of income.

Review of Documents – Sometimes Income tax department wants to review documents based on which you have filed income tax return. You need to submit the documents or proof to income tax within certain time limit.

High Value Transaction – Remember all high value transactions are monitored by income tax department. If any mismatch found in your income verses this truncation you are likely to get income tax notice. Following high value transactions are monitored.

  • Cash Deposit of 10 Lakh or above in Bank
  • Credit card purchases of 2 Lakh or above in a year
  • Mutual Funds Investment of 2 Lakh or above in a year.
  • Purchase of Bond or Debenture 5 Lakh or above in a year.
  • Purchase of shares worth 1 Lakh or above.
  • Sale or purchase of property value worth 30 Lakh or more.

Non-Disclosure of Capital Gain – If you have made capital gain by selling stocks/property, but forgot to mention the detail about capital gain in Income tax return you are likely to get Income tax notice.

Investment on the name of Spouse or Kid – You have invested money on the name of your spouse of kid and generated income out of it. If you are not reporting clubbing of Income you are likely to get income tax notice.

How to deal with Income Tax Notice?

In case you have received income tax notice don’t get panic you need to oblige the taxman. Follow the steps given below to deal with Income tax notice.

Step-1- Keep calm and read the notice carefully understand first what tax man is trying to communicate by notice.

Step-2 – Verify Basic details given in notice.

  • Check if notice is on your name.
  • PAN number mentioned in notice is correct or not.
  • Check if notice is for this year or previous year.

Step-3 – Find out exact reason for the notice. In order to know exact reason follow steps given below.

  • Login to Income Tax Website.
  • In the Menu you will find “Compliance” section.
  • Under this section you will find “Related Information Summary”.

You will find information about notice under section “Status as per record” like Return not received, Paid Rs. 2,00,000 or more against credit card spending etc.

Step-4 – Take appropriate action based on reason. Few action points are given below.

Return Not Received

Action 1:-

If you have not filed income tax return and it is under preparation.

Response – “ITR has not been filed”

Reason- “Return is under preparation”

income tax return

Action 2:-

You have already filed income tax return before.

Response – “ITR has been filed”

Reason- Select “e-Filed or Paper Filing”

income tax notice

Paid Rs. 2,00,000 or more against credit card spending

Action – Select Information is related to “Self” or “I need more information”.

income tax notice

Other information summary code mentioned in Income tax notice:

  • CIB-403– Time deposit exceeding Rs 2 lakh
  • TDSreturn – Interest other than Section 194A
  • CIB-321Share transactions Rs 20000
  • CIB-184, CIB-411
  • TDS-92A, TDS-92B(TDS return salary to employee), TDS 94A
  • TDS return– Insurance Commission
  • CIB-410cash deposit aggregating of Rs 200000
  • Transfer of Immovable property
  • Interest in Bank exceeds Rs 50000

If you find above action steps confusing you may take help of tax expert or chartered accountant.

Hope you find above information useful. Do share your query in comment section.

Shitanshu Kapadia
Shitanshu Kapadia
Hi, I am Shitanshu founder of moneyexcel.com. I am engaged in blogging & Digital Marketing for 10 years. The purpose of this blog is to share my experience, knowledge and help people in managing money. Please note that the views expressed on this Blog are clarifications meant for reference and guidance of the readers to explore further on the topics. These should not be construed as investment , tax, financial advice or legal opinion. Please consult a qualified financial planner and do your own due diligence before making any investment decision.