Notices Issued Under the Income Tax Act

After an Assessee files his/her Income tax return, it is processed by the Income tax Department. If there is any mistake / error / discrepancy noticed in the return filed, then the same is intimated to the Assessee by the means of an income tax notice.

You are not sure about what it is and how to respond to it. Don’t panic when you receive a notice from income tax department.

First and foremost, it is important that you understand the difference between an intimation and a notice. Intimation is to highlight the outcome of the processing of your return or conclusion of assessment, and you may not be required to act upon it (although there are a few exceptions to it). However, when you receive a notice, it requires you to give your response to the IT department.

Recently, the CBDT has notified a new scheme known as Centralized Communication Scheme (CCS) whereby, gradually all communications will happen in an electronic mode.
There are various types of Income tax notices, issued by the Income Tax Department, which you can read in the question below.

What are the types of Income tax notices?

The Income tax department issues notices for various purposes under Income Tax Act, 1961. These are listed below:

  1. Income Tax Intimation/ Notice under section 143
  2. Notice under section 139(9)
  3. Notice under section 148
  4. Notice under section 245
  5. Notice under section 142

Let us know the above types of notice in detail:

  1. Income Tax Intimation/ Notice under section 143:
    • Income Tax Intimation under section 143(1):  
      It is an intimation sent by the Income tax department after the return is filed by the taxpayer and processed by CPC.  
      The income is computed after making the necessary following adjustments to the total income in the return:
      1. any arithmetical error in the return;
      2. an incorrect claim (provided the incorrect claim is apparent from the information filed);
      3. disallowance of incorrectly claimed loss or expenditure;
      4. any income which has not been included in the return
      5. disallowance of deduction u/s 10AA, 80-IA, 80-IAB, 80-IB, 80-IC, 80-ID or 80-IE, if return is filed beyond due date u/s 139(1).
        However, before making any such adjustments, in the interest of natural justice, intimation has to be given to the assessee requiring him to respond to such adjustments. Such intimation may be in writing or through electronic mode. The response received, if any, has to be duly considered before effecting any adjustment. However, if no response is received within 30 days of issue of such intimation, the processing shall be carried out incorporating the adjustments.
    • Income Tax Notice under section 143(2)/(3):
      Notice u/s 143(2) is issued to assessee by the Income Tax Department when Income Tax Return of assessee is selected for scrutiny assessment or detailed assessment u/s 143(3). In simple words, Scrutiny assessment or detailed assessment u/s 143(3) means a scrutiny carried out to confirm the correctness and genuineness of various claims, deductions, etc. made by assessee in Income Tax Return. The basic purpose of this scrutiny assessment is to ensure that assessee has filed the return with the correct income and paid the tax accordingly.

      The objective of this scrutiny is to check that:
      • Assessee has not understated his income
      • Assessee has not computed excessive loss
      • Assessee has not under-paid the tax in any manner
        So, to carry out scrutiny u/s 143(3) of the Income Tax Act, notice u/s 143(2) is issued by the Income Tax Department.

        Time limit for issuance of notice u/s 143(2):
        A notice u/s 143(2) for scrutiny assessment can only be issued upto a period of six months from the end of the financial year in which the return was furnished by assessee.
        For example, Ms Sharma filed her return on 25.07.2016 for the financial year 2015-16. In such a case, the notice u/s 143(2) can be issued to Ms Sharma only upto 30.09.2017 being end of six months’ period from the FY 2016-17 in which the said return was filed.
  2. Income Tax Notice under section 139(9):
    This Income Tax Notice is issued if the Income tax return filed is defective. Common cases when the notice for defective return is sent:
    • When you have filled up details of taxes paid, but have not provided income details, the Income Tax Department deems it defective.
    • A notice for defective return is sent when tax deducted has been claimed as a refund, but no income details are provided in the return.
    • The Department sends you a notice for defective return under Section 139(9) when you haven’t paid your taxes in full.
    • When you are required to maintain a balance sheet and profit and loss statement but haven’t given the details of the same with your income tax return, the tax return is declared defective.
    • When audit report u/s 44AB is applicable but the same has not been furnished online along with the return of income.
      An Assessee must revise his/her return addressing the defects to the Income Tax Department within 15 days from the receipt of intimation order under section 139(9).
      To know how to response please click here
  3. Notice under Section 148:
    If the assessing officer has reasons to believe that assessee has not disclosed his income correctly and therefore, assessee has paid lower taxes or where assessee has not filed his tax return at all in a case where he should have ideally filed it as per law, this is termed as income escaping assessment. Under these circumstances the assessing officer is entitled to assess or reassess the income, as the case maybe.

    Prior to making such assessment or reassessment, the assessing officer should serve a notice to the assessee asking him to furnish his return of income. The notice issued for this purpose is issued under the provisions of section 148. The various timelines to be adhered to for issuance of notice under section 148 is as follows:
    • Upto four years from the end of the relevant AY:
      Notice cannot be issued by any officer below the rank of Assistant Commissioner or Deputy Commissioner. An assessing officer can only issue a notice under section 148 on the direction of the Joint Commissioner after recording the reasons to do so.
      For AY 2018 -19 notice under section 148 can be issued till 31st March 2023.a.     
    • Beyond four years but upto six years from the end of the relevant AY:
      Notice can only be issued by the Chief Commissioner or Commissioner is satisfied that income has escaped assessment. The amount of income which has escaped assessment should be more than Rs. 1,00,000.
      For AY 2018 -19 notices under section 148 can be issued till 31st March 2025.
    • Beyond four years but upto sixteen years from the end of the relevant AY:
      Notice under section 148 can be issued if income in relation to any asset (including financial interest in any entity) located outside India, is chargeable to tax in India but has escaped assessment.
      For AY ending 2018 -19 notices under section 148 can be issued till 31st March 2035.
  4. Notice under Section 245:
    If the assessing officer has reasons to believe, that there is tax demand which has not been paid for the previous years by the assessee and he wants to set off the current year refund against that demand, notice under section 245 is issued. However, the assessing officer can proceed with adjustment of demand and refund only after assessee has been provided with a proper notice and an opportunity for being heard.
    The timeline to respond to the notice is within 30 days from the day of receipt of the notice. If assessee does not respond within the aforesaid timeline, the assessing officer can consider the non-response as consent and proceed with the adjustment.
    For example: If Mr. A has an outstanding tax demand of Rs.25,000/- pertaining to A.Y.2015-16 and in A.Y.2017-18 he has a tax refund of Rs.31,000/- , So assessing officer can adjust the tax refund of Rs.31,000 against the demand of Rs.25,000 after the timeline allowed under Sec.245 has expired and Mr. A will be paid a net refund of Rs.6,000/- only.

  5. Notice Under 142(1) – Inquiry before assessment:
    Notice under Section 142(1) is usually served to call upon documents and details from the assessee, and to take a particular case under assessment.
    The basic purpose is to inquire the details of the assessee before making assessment under the Act. It can be related to ‘Preliminary Investigation’ before starting the assessment.
    By serving a notice u/s 142(1) the assessing officer, may call upon the assessee:-
    • To furnish a return of income in respect of which he is assessable, where he has not filed his return of income within the normal time allowed.
    • It may include return in respect of his own income or income of another person for which he is liable to be assessed. Example- In case of legal guardian/ deceased person.
    • To produce accounts or documents which the AO may require for the purpose of making an assessment.
    • To furnish in writing any information on matters including statement of the assessee. For Example- statement of assets and liabilities of the assessee on a particular date.
      The AO may or may not start assessment after compliance with this notice, dependent upon the facts of assessee. If AO is satisfied with the produced documents or return, he may not start with the assessment process.
      Compliance with this notice u/s 142(1) is mandatory even if the tax payer is of the opinion that the accounts/documents requested are irrelevant.
      If assessee does not comply with the provisions of this section:
      • It may result in Best Judgement Assessment u/s 144, or
      • Penalised under Sec 271(1)(b) i.e. Rs 10,000 for each failure, or
      • Prosecution under Sec 276D which may extend upto 1 year and with fine.

What is Intimation u/s 143(1)?

Intimation under Section 143(1) of the Income Tax Act can be issued to begin a summary assessment without calling the taxpayer. In a summary assessment, the tax officer would not call for additional information or documents as requested in a scrutiny assessment.
An income tax notice under Section 143(1) will be issued in any of the following scenarios:

  • Additional tax is payable by the assessee, after making adjustments mentioned below and giving credit to the taxes and interest paid. In such a case, the taxpayer will be asked to pay the amount due within 30 days.
  • Tax is refundable to the assessee, after making adjustments mentioned below and giving credit to the taxes and interest paid.
  • There is an increase/decrease in the loss declared by the assessee and no tax or interest is payable by the assessee and no interest is refundable to the assessee.

The total tax payable, refund applicable or loss can be recomputed due to any of the following reasons:

  • Any arithmetical error in the return.
  • An incorrect claim, if such incorrect claim is apparent from any information in the return.
  • Disallowance of loss claimed, if a return of the previous year for which set-off of loss is claimed was furnished beyond the due date specified under section 139(1).
  • Disallowance of expenditure indicated in the audit report but not taken into account in computing the total income in the return.
  • Disallowance of deduction claimed u/s 10AA, 80IA to 80-IE, if the return is furnished beyond the due date specified under section 139(1).
  • Addition of income appearing in Form 26AS or Form 16A or Form 16 which has not been included in computing the total income in the return

Intimation under section 143(1) shall be sent before the expiry of one year from the end of the financial year in which the return is made. For example if the return is filed on 25.07.2018, then the intimation u/s 143(1) can be sent on or before 31st March 2020.

Intimation u/s 143(1) is sent in the following cases:

  1. When there is no mismatch:
    It’s likely that all of the fields are matching and there is refundable or no tax due – in such a case you can safely assume the intimation to be an acknowledgement of your tax return. No further action is required from your side.
  2. When there is a Demand and you agree with it:
    You need to make payment of this tax due to the income tax department. Once you make a payment of the tax due, no further action is required from your end.
    The Taxes can be paid by a taxpayer through any one of following modes:
    • Through Bank (physical)
    • Online payment
  3. Where there is a Demand and you do not agree with it:
    It can be corrected through two ways.
    • Rectification Request: A rectification request under section 154(1) is allowed by the Income Tax Department for correcting mistakes when there is an apparent mistake in your ITR
    • Revised Return: Revised Return under Section 139(5) of the Income Tax Act can be filed only if you have made any mistakes in your original income-tax return.

What does communication under section 143(1)(a) means?

Notice u/s 143(1)(a) is an intimation from the Central Processing Centre (CPC) seeking clarification of the mismatch between the Income and deduction when compared to Form 16, Form 16A or Form 26AS.

How to provide response to Communication u/s 143(1)(a)?

Step 1: Login to the Income tax portal https://www.incometaxindiaefiling.gov.in/home
Step 2: Go to e- Proceeding tab and select e-Assessment/Proceedings.

Step 3: After clicking on “e-Proceeding”, you will see a screen as given below. Click on Adjustment u/s 143(1)(a)’.

Step 4: After selecting the proceeding name for the respective Assessment year, the following screen will be displayed. Click on Reference ID to view the notice and to provide the response please select the submit option.

Step 5: Now you have to select whether you ‘Agree’ or ‘Disagree’ with the adjustments in the notice and accordingly you have to select the same.

Step 6: If you Select ‘Agree or Partial Agree’, you have to file a revise return after providing necessary adjustments. If you select Disagree the following screen will be displayed and then you will have to mention the reasons for your disagreement. The reasons are same as those mentioned above. 
Enter the necessary details and click on ‘submit’ and once you submit your response, you will see an acknowledgement screen.

What Is Form 26AS and What are the Contents OF Form 26AS? How to Download the same?

During income tax return filing season, you come across Form 26AS very frequently.  Form 26AS gives overall view of tax deducted for your PAN at various sources.

Summary of Form 26AS:

Form 26AS gives an overall view of your income tax deducted in a particular financial year from various sources of income like tax deducted on Salary income, tax deduction on interest received from Fixed deposits, tax deducted on consideration received from sale of property, etc.

Form 26AS displays various taxes that are deducted from your income by your employer, bank, or your tenant. It also displays your advance tax or any self-assessment tax that have been paid during financial year during that year. The tax that is collected at source (any form of source like bank, employer etc.). It also contains the details of income tax refunds that you have received from your tax department during financial year. It also has a column showing AIR transactions details. AIR is the Annual Information Return which is filed by your bank in case you have entered into some specified transaction. 

Steps to view Form 26AS:

  1. Log in to Income Tax department website https://www.incometaxindiaefiling.gov.in/home and get yourself registered there.
  2. After getting registered, log in to the user ID.
  3. Click on My Account tab.
  4. You will see option of View Form 26AS (Tax Credit).
  5. On the next page, you have to confirm and after confirmation, you will be redirected to Traces website.
  6. Click on view/verify Tax credit & then on view 26AS.
  7. Select the relevant assessment year for which you require form 26AS & You can select view as HTML to see your form 26AS. 

Contents of Form 26AS:

  1. Part A of Form 26AS :
    TDS deducted by each source is shown as a separate table.  Please verify that
    • Details of deductor match your Form 16, Form 16A.
    • All entries for a deductor match the entries in your Form 16/16A. Check each entry for Section Under Which Deduction is made (192 for Salary, 194A for interest on Fixed Deposit from bank), Date at which Transaction is made, Status of Booking.
  2. Part A1 of Form 26AS :
    This section will show transaction in those financial institutions such as banks    where the individual has submitted Form 15G / 15H. TDS in these cases would be zero (because you have submitted 15G/15H). This section enables you to keep a track of all the interest gain which has not been taxed.
  3. Part B of Form 26AS :
    Tax Collected at Source (TCS) is collected by the seller from the buyer at the time of sale of specified category of goods (such as Alcoholic liquor for human consumption, Scrap, Parking lot, Toll plaza). The TCS Rate vary for each category of goods and the TCS is to be deposited with the government.
  4. Part C of Form 26AS :
    Details of Tax Paid (other than TDS or TCS) If you have paid Advance Tax or Self-Assessment Tax it will appear in this section.
    If advance tax or self-assessment tax details don’t match with your details please contact the Bank.
  5. Part D of Form 26AS :
    If you have got any tax refunds in that assessment Year it would be listed under this section.

* Any TDS deducted on any form of income received by a person is reflected in such person’s 26AS. However in case of TDS deducted under section 194IA by buyer while making payment to seller of property is also reflected in buyer’s 26AS.

Notes:

  • Status of booking is F or FINAL which shows that payment details of TDS / TCS deposited in bank by deductors have matched with the payment details mentioned in the TDS / TCS statement filed by the deductors.
  • If Status of Booking is U which means Unmatched . It means Deductors have not deposited taxes or have furnished incorrect particulars of tax payment. Final credit will be reflected only when payment details in bank match with details of deposit in TDS / TCS statement

Importance of Form 26AS:

  • Form 26AS is an important tool that helps you to compare your taxes deducted at various sources and identify if you don’t have any multiple deductions in your account. In case you have a tax deduction and it is not shown under your form 26AS that it is not deposited with the Income Tax department, in such case you can contact your employer or the source which have deducted the tax at source. In most cases, this happens due to wrong PAN number being updated at the source. 
  • Also, if your form 26AS is showing different values for TDS deducted that deducted you can request Income Tax Department to recheck your case and do the necessary changes. This also helps you avoid any kind of notice or penalty from Income Tax Department for non-reporting of actual TDS of your incomes.

What are Major Codes and Minor Codes in Form 26AS?

Here, Major Code means the type of “Tax Applicable”, whereas Minor Code means “Type of Payment”.
The List of Minor and Major Codes are:

Major Codes:

Code Description
0020 Corporation Tax
0021 Income Tax (Other than Companies)
0023 Hotel Receipt Tax
0024 Interest Tax
0026 Fringe Benefit Tax
0028 Expenditure Tax/ Other Taxes
0031 Estate Duty
0032 Wealth Tax
0033 Gift Tax

Minor Codes:

Code Description
100 Advance Tax
102 Surtax
106 Tax on distributed profit of domestic companies
107 Tax on distributed income to unit holder
300 Self-Assessment Tax
400 Tax on Regular Assessment
800 TDS on Sale of immovable property

*Click here to know about Tax Credits

SIP GUIDE

SIP, which is commonly known for Systematic Investment Plan, where in the intending investor has to invest a small chunk of his savings regularly say monthly/bi-monthly/fort nightly in any of the SIP scheme. It ensures financial discipline of the investor.

There is nothing to worry about the market mood, timing, performance of the security at the moment unlike in other investment modes. It has to be regularly invested. Returns when compared to investment in RD or ELSS are more in SIP.  Also, the overall average cost of investment is minimized, and returns are maximized. If invested over a long period money invested starts compounding.

Step-up SIPs allow investors to increase the SIP amount periodically. ‘Alert SIP’ is another form of the regular systematic investment plan which sends an alert to the investor to buy more when the markets are down. 

In case of the ‘perpetual SIPs,’ investors don’t have to choose the end date of the SIP. Once the goal is met, the investors can stop the SIP by sending a written communication to the fund house.

Withdrawal of SIP are very easy in case of contingencies or in need of the hour.

Mutual Funds

Investing in mutual funds is the easiest means to grow your wealth, especially for the small investors. A mutual fund is not an alternative investment option to stocks and bonds, rather it pools the money of several investors and invests this in stocks, bonds, money market instruments and other types of securities. It is a well-diversified, low cost & tax efficient way of savings.

Different types of mutual funds are

  1. Equity (Growth)
  2. Debt (Income)
  3. Money Market (including Gilt)
  4. Balanced funds

Choosing a scheme of mutual funds can be decided by considering age, goals, risk aversiveness, asset allocation & timing of investment. There are debt or arbitrage funds for investment for a period of 1 day to 3 years, hybrid funds for a period of 3-5 years, equity funds for 7-10 years.

Mutual funds come with regular return schemes, less returns but growth-oriented ones and many more. Monitoring the investments made are not a high-end task now a days, because mutual funds are administered by the professional management. We can get the updates of the daily NAV (Net Asset Value). Subscribing & selling the fund units are also easy.

ELSS Guides

ELSS are diversified equity mutual funds that invest a major chunk of your money in equity and equity-related securities. ELSS funds offer you a convenient way to avail tax advantage coupled with trying to generate higher returns by harnessing the potential of the equity markets. Investing in ELSS funds makes you eligible to avail tax deduction of up to Rs 1.5 lakh under section 80C of the Income Tax Act, 1961.

Some of its features are:

  • Ideal way to invest in equity market with less knowledge about it, supported by a professional fund management & a well-diversified portfolio. Can be invested with amount as less as Rs 500 also.
  • Lesser lock-in-period than compared to other tax saving investment schemes i.e, 3 years. PPF comes with 15 years/ NSC with 5 years.
  • Risk oriented, since the securities to be invested are equity. But if the investment is made for longer periods say 7-10 years, volatility in the returns can be minimized.
  • Tax deduction is available under 80C up to Rs. 1.5 lakhs subject to other monetary limits in other modes of investment.

ELSS comes with dual benefits like tax benefits & wealth accumulation.

194 DA – Payment in respect of life insurance policy

Any resident receiving any amount (more than Rs. 1,00,000/-) under a life insurance policy (including bonus) shall be deducted a tax deducted at source at the rate of 1% by the person responsible for paying the sum.

However, in case the amount so received during the financial year in aggregate does not exceed Rs. 100,000, TDS under this section shall not be made.

The amount so received (including the sum allocated by way of bonus on such policy) by the assessee shall be declared as Income from Other sources while filing the Return of Income.

TDS under sec 194DA shall be deducted only if the amount paid is not exempted from tax as per Sec 10(10D).

Guide to Tax Saving

There are many modes of tax saving investment options for the tax payer. One has to plan diligently before investing so that he can ensure optimum tax savings along with maximum returns from the investments made.

1. Make investment of Rs 1.5 lakh under Sec 80C to reduce your taxable income.

2. 80C deductions are PPF, NPS, EPF, Life insurance premium, tax-saving mutual funds (ELSS), children’s tuition fees and housing loan principal repaid among others.

3. Buy Medical Insurance & claim a deduction up to Rs. 25,000 or 30,000/- (based on seniority) for medical insurance premium under Section 80D.

4. Claim deduction up to Rs 50,000 on Home Loan Interest under Section 80EE for a loan amount not exceeding Rs. 35 lakhs (loan to be sanctioned between 1st April 2016 and 31st March 2017)

5. 80E – Deduction in respect of interest on loan taken for higher education only an individual can claim thisdeduction, it is not available to HUF or any other kind of taxpayers.Higher education loan taken for self, spouse or children’s or for a student for whom the individual is a legal guardian& the taxpayer can take 8 years period of deduction.

6. 80 CCD- Any assessee deposits amount in a pension scheme notified by the Central Government upto a maximum limit of 10 % of his salary or 20 % of his gross total income as the case may be. In addition to that a further sum of Rs. 50,000/- can also be claimed as deduction if he has invested in excess of the above said limits. 7. 80 GG – Any assessee who is not in receipt of HRA, any expenditure of rent in excess of 10% of his total income subject to lower of Rs 5000 p.m or 25% of his total income for the year.

Tax Saving Fixed Deposits

Tax Saving Fixed Deposits are those deposits, by investing in which you can get deduction under section 80C of the Income Tax Act, 1961. Any investor can claim a deduction of a maximum of Rs.1,50,000 by investing in such tax saver fixed deposits.

Some of the points to be noted in this regard are as follows:

  1. Only Individuals and Hindu Undivided Families (HUFs) can invest in tax saving FD scheme.
  2. Interest earned on these is taxable under Income from Other Sources
  3. FD can be placed with a minimum amount which varies from bank to bank.
  4. These deposits have a lock-in period of 5 years. Premature withdrawals and loan against these FD’s are not allowed.
  5. A person can invest in these FD’s through any public or private sector bank except for co-operative and rural banks.
  6. Investment in Post Office Time Deposit of 5 years also qualifies for deduction under section 80 (C) of the Income Tax Act, 1961.
  7. Post Office Fixed deposit can be transferred from one post office to another.
  8. One can hold these FD’s either in ‘Single’ or ‘Joint’ mode of holding. In the case the mode of holding is joint, the tax benefit is available only to the first holder.
  9. The interest earned is taxable as per the investor’s tax bracket and therefore, TDS is applicable. The interest on deposits is payable on either monthly/quarterly basis or can be reinvested. A person can avoid TDS deduction on the interest earned by submitting Form 15G (or Form 15H for senior citizens) to the bank. Senior citizens can claim deduction of Rs 50,000 on the interest earned from deposits as per the newly inserted section 80TTB.
  10. If any amount, including interest accrued thereon, is withdrawn by the assessee from his account (Psot Office Deposit scheme and Senior citizens savings scheme), before the expiry of the period of five years from the date of its deposit, the amount so withdrawn shall be deemed to be the income (except income declared under other sources) of the assessee of the previous year in which the amount is withdrawn and shall be liable to tax in the assessment year relevant to such previous year.

How to file Return u/s 139(9) – Defective return?

When filing your yearly income tax returns, it is important to ensure that you provide details of all your income, deductions and investments. If the Income Tax Department finds any mismatch of information or mistakes in your tax return, it will send you a notice u/s 139(9).

If your return is found defective, then I-T department will send you a defective return notice under section 139(9) of the Income Tax Act. You will get 15 days of time from the date of receiving the notice to rectify the defect in your return.
The detailed process to submit the Response to defective notice is as below:

Step 1: Go to Income tax portal and Login to the same
Step 2: Now click on “e-File” tab and select the option “e-File in response to notice under section 139(9)”.

Step 3: On successful validation if there is any defective notice raised by either CPC/AO, the below screen will be displayed, select submit for the concerned defective return for which you are going to submit a response.

Step 4: For defective notice raised by CPC, the below screen will be displayed:

Step 6: Now if you agree with the effect then just fill your Income Tax Return by rectifying the defect by selecting Return u/s 139(9) and mention date of original return, acknowledgement number, Notice number and Notice date. Once you do that then generate its xml file and upload it in the above screen. After that you’ll see the below screen: