Filing taxes is an essential responsibility for every citizen, and it's crucial to do it accurately to avoid any unwanted attention from the Income Tax (IT) department. To ensure a smooth and hassle-free tax filing experience, it's essential to be aware of common mistakes that can lead to notices from the IT department.
Says Akhil Chandna, Partner, Tax, Grant Thornton Bharat: "The number of tax notices issued to assesses increased as the IT department has become more vigilant, equipped with an integrated database on taxpayers, and is applying artificial intelligence-based tools to track financial transactions. Taxpayers need to ensure that all sources of income and other relevant details are reported accurately while filing the tax return."
To avoid getting notices from the IT department, one must ensure the following common areas of non-compliance/incomplete compliance are taken care of:
Ensure All Sources Of Income Are Declared: Taxpayers should report both taxable and exempt income from various sources in the appropriate income tax return (ITR) schedule. This includes interest earned on savings accounts, fixed deposits, rental income, and capital gains. Exempt income, such as provident fund withdrawal, lump-sum payment from an insurance policy, gifts from relatives, and interest on income tax refund, should also be reported. Failure to report all sources of income may result in higher tax obligations, interest on tax shortfalls, and potential penalties.
Claim Of Various Tax Deductions/Exemptions: Taxpayers should ensure that income/expenses claimed for deductions in the ITR are supported by receipts and proof of having incurred the expense/investment. "During tax scrutiny, taxpayers may be required to substantiate the deductions claimed, and the absence of relevant supporting documents can lead to increased tax liability, interest, and penalty implications. Keeping a record of evidence and claiming deductions based on those proofs is crucial," says Chandna.
Disclosure Of Details Of Income/Assets Outside India: Many individuals who qualify as tax residents of India fail to report income or assets held outside the country. These assets/income sources may pertain to periods when the individual worked or stayed abroad or from investments made outside India. It is mandatory to disclose all such income in the Indian tax return for individuals who qualify as ordinary tax residents in India.
To avoid receiving a notice from the IT department, responsible taxpayers should report all their income, claim deductions with proper documentation, and ensure the disclosure of any income/assets outside India. Additionally, it is crucial to respond promptly within the allotted timeframe if a notice is received from the tax department. By following these steps, taxpayers can navigate the tax filing process smoothly and minimize the chances of getting notices from the IT department.