Compliance Income Tax Return Filing Notice: Income Tax is a vital tax that the central government levies on the income of individuals and businesses earned in a financial year. Income tax acts as an essential source of revenue for the government to carry out different public welfare activities. The income tax proceeds are used to provide better infrastructure, healthcare facilities, and education to the public. Income tax is a direct tax levied by the central government on the income of the citizens.
Every citizen should adhere to the income tax regulations and file income tax timely. If a person fails to comply with the income tax department and does not file a return, then he/she receives a notification from the department intimating the same.
In the notice sent by the income tax department, the person can be asked for explaining the reason for the non-filing of the tax return. The income tax department can also ask the person to furnish records of his incomes and expenditure for a particular financial year. Once you receive such notice from the income tax department, you have to explain the reason for not e-filing the return, or you can be asked to explains some facts regarding your income.
Here, in this article, we will discuss the compliance to the income tax return notice, how to reply to such notice, and how the income tax department gets information regarding your non-compliance.
Reasons To Get An Compliance – Income Tax Return Filing Notice
There can be numerous reasons why the income tax department can send a person the non-compliance Income tax return notice. Some of the primary reasons can be not filing the tax return or disclosing some facts about certain incomes. The Income-tax department gets information because it adheres to strict know your customer norms and online filing of return. The online filing of returns and easy access to data has made the system of the income tax department more efficient. Now, let us discuss the reasons for which a person can receive non-compliance income tax return notice:
- Late Filing or Non-Filing of Income Tax Return: One of the most common reasons for receiving a non-compliance letter is a delay in filing or non-filing of ITR. According to the income tax act, a person needs to file a return if his/her taxable income exceeds the exemption amount in a financial year. When a person does not file a return in any of the previous six assessment years, he/she is sent a notice by the income tax department intimating the same. Most of the employees think that they are not liable to pay income tax, as their employer has deducted TDS. Here, it is important to note that, even if TDS is deducted, an employee has to file ITR for his other source of income. If a person does not file ITR, he or she may be fined ₹5,000 every year. A person also has to pay 1% interest per month on the tax amount due, starting from the due date.
- Difference In Tax Credit: The income tax of an employee is deducted by his/her employer and is known as TDS. Form 26AS is an income tax document of a person that reveals the actual tax received, actual tax deducted, advance taxes, and refunds. On the other hand, the TDS certificate shows the tax deducted from one’s salary. If there is any mismatch or discrepancy between both the documents of a person, then he/she can receive a non-compliance notice from the income tax department.
- Non-Disclosure or Concealment of Income: A person can receive the non-compliance income tax return filing notice if he/she has concealed facts about his incomes. Most of the times, persons do not disclose all their sources of incomes to evade tax. If a person has unused lands, property, vehicles, jewellery, etc. He/she needs to disclose all the facts for wealth tax computation. If a person hides his sources of income and conceals facts, he or she may get a notice from the income tax department and be subjected to pay a fine.
- High-Value Transactions: If a person makes a transaction in large amounts, he/she is bound to declare such a transaction to the government for tax computation. The income tax department keeps an eye on the transactions of every individual. If there is any mismatch in the documents provided by the person, then he/she might get a non-compliance notice.
How Does The Income Tax Department Find Non-Compliance
The Income-Tax Department has set up a major data centre called the Centralised Processing Cell- Compliance Management or CPC-CM. The data centre was established in February 2013 to enable the Income-Tax department to check the cases of non-compliance and non-filing of tax returns. The data centres make it easier to access the data of individuals without even going through the hassle of a physical check.
The CPC-CM has the entire PAN data available to their benefit. They identify and send notifications to users that haven’t filed ITR or have concealed certain information. They do this with the help of information available in the different database including, Annual Information Return or AIR, Central Information Branch or CIB, and TDS/TCS return. Here, we have provided the details of data collected from different databases:
Annual Information Return
According to the tax laws, every institution is bound to furnish records of the financial transactions carried out by then in a particular financial year. They are required to summarise the details and submit the Annual Information Return or AIR. Following are the details of different financial data that is to be submitted in the AIR:
- AIR-001: Cash deposits of ₹10,00,000 or more in a year in saving accounts.
- AIR-002: Payment of ₹2,00,000 or more against credit card dues.
- AIR-003: Investment amounts of ₹2,00,000 or more in mutual funds.
- AIR-004: Bonds or Debentures investments amounting to ₹5,00,000 or more.
- AIR-005: Investment of ₹1,00,000 or more in shares.
- AIR-006: Purchase of immovable assets valued at ₹30,00,000 or more.
- AIR-007: RBI bond investment of ₹5,00,000 or more.
Central Information Branch
Central Information Branch or CIB is that part of the Income-Tax department that gathers all the transaction information related to Permanent Account Number or PAN. It records the following transactions regarding sales and purchase of property and monetary deposits:
- CIB-94: Sale of Automobile or Motor vehicle.
- CIB-151: Transfer of Immovable assets such as land or building.
- CIB-154: Transfer of Capital Assets where value declared is more than the sale value.
- CIB-157: Purchase or acquiring immovable property valued at ₹5,00,000 or more.
- CIB-183: Deposits of ₹1,00,000.
- CIB-185: Purchase of bank draft of ₹50,000 or more in cash.
- CIB-321: Share transactions of ₹20,000 or more.
- CIB-403: Investments in fixed deposits amounting to more than ₹2,00,000.
- CIB-406: Credit card dues payments amounting to ₹2,00,000 or more.
- CIB-410: Cash deposits amounting to 2,00,000 in a day.
- CIB-502: Contract amounting to ₹10,00,000 or more in the commodities exchange.
- CIB-514: Interest payments by the co-operative credit societies.
Tax Deducted At Source Returns
Under the TDS returns, the income tax department records two transactions, and they are:
- TDS-94A: TDS return of interest other than interest on security deposits.
- TDS-92B: TDS return of Salary to Employees.
Replying To Non-Compliance Income Tax Notice
In case you receive a notice from the income tax department for non-filing or non-compliance with ITR, do not panic. Given below is the step-by-step procedure to reply to such notices.
Step 1: The first thing one should do is log in to the e-filing portal at https://incometaxindiaefiling.gov.in.
Step 2: After the successful login, click on the “compliance tab”, one can see two options, “View and Submit my compliance” and “View my submissions”. The “View and Submit my compliance” tab will show the details of the years in which return has not been filed or “any third party information required” message.
Step 3: In this step, the taxpayer can choose either “return has been filed option” or “return has not been filed option”.
Step 4: A taxpayer can choose the “return has been filed” option only if he/she has filed the return and has to produce a proof for the same. The proof can be the acknowledgement number or time of e-filing.
Step 5: In case if your return has not been filed, you must choose the “return has not been filed” option. After which, you will be asked to choose a reason for not filing the return from the following options:
- “Return under preparation”.
- “Business has been closed”.
- “No taxable income”.
- “Others”. (if you select others option, you have to fill the remarks for the same.)
Step 6: Once you have provided all the relevant information, click on the “Submit” button.
Replying To Notice For Related Information
The income tax department sends related information notice when it requires a person to furnish details of third-party payments of receipts. Now, let us discuss the procedure of replying to related information notice:
Step 1: Go to https://incometaxindiaefiling.gov.in and log in to your account using your ID and password.
Step 2: After the successful login, click on the “compliance tab”, one can see two options, “View and Submit my compliance” and “View my submissions”. If the “view and submit my compliance” option shows “Thrid party information required”, then follow the next step.
Step 3: Now, you can choose the following options from the dropdown menu:
- “Self-Investment or expenditure is out of exempt income” for income spent out is exempt from tax.
- “Self-Investment or expenditure is out of accumulated savings” for investment or expenditure made out of your accumulated savings.
- “Self-investment or expenditure is out of gifts/loans from others” for investment or expenditure made out of money gifted by others or borrowed from others.
- “Self-investment or expenditure out of foreign income” for investment or expenditure made out of foreign income.
- “Self income from the transaction is exempt” for income from a transaction that is exempt under the tax.
- “Self income from the transaction is below taxable limit” for income from a transaction that is below taxable limit.
- “Self income from transaction-related to different assessment year” for income for transactions that belong to a different assessment year.
- “Self not known” for other explanations.
- “Not known” for no information available for such transactions.
- “I need more information” if one needs more information to submit a response.
Step 4: After having selected the option that best suits you, click on the “Submit” button.
The response that a taxpayer submits for the non-compliance of the tax return will be verified by the Income-Tax department. If the department finds the response to be satisfactory, the case will be closed, and the taxpayer will be intimated for the same.
In The End…
Income tax is an essential source of revenue for the government to provide better infrastructure and carry out public welfare activities. Being a responsible citizen, everyone should file the income tax return on time to avoid the hassle of going to a non-compliance response.