Salaried employees are getting income tax notices. Here’s how to respond

• August 8, 2023
• CA Chandan Agarwal's Office

How salaried employees can respond to Income Tax Notice: Experts say salary individuals should ensure sending a timely response to any notice from Tax Department.

If you have claimed a fake deduction or exemption in your Income Tax Return (ITR), you may land in trouble. Several reports recently said that the Income Tax Department has been sending notices to salaried taxpayers, seeking proof of tax exemptions and deductions claimed by them in ITR.

The tax rules allow individuals to claim several tax exemptions and deductions under the Old Regime. However, experts say that taxpayers claiming fake or bogus deductions in their return of income may catch the Income-tax department’s attention and end up receiving a notice.

“The income tax department today has a plethora of sources from which one is able to accumulate a great amount of information about the income and expenses of a person. One can expect to receive a notice from the income tax department whenever there’s a mismatch between the information filed in ITR by the taxpayer and the information as received from independent sources,” says Ankit Jain, Partner, Ved Jain & Associates, a chartered accountancy firm.

What should you do after receiving a notice from the tax department?

These days Income Tax notices are generally sent to the registered email IDs of taxpayers. Tax experts say salary individuals should ensure sending a timely response to any notice from the Income Tax Department. Any delay can further worsen the case for the recipients of such notice.

“In case a taxpayer receives such notice from the tax department, he should ensure a timely response to the said notice addressing all the issues raised in the notice. Further, in case of any assessment proceedings the taxpayer should furnish all supporting documents such as any relevant receipts, vouchers, invoices or any other document as proof of evidence for claiming any relevant deduction, exemption, allowances or rebates, etc,” says Dr Suresh Surana, Founder, RSM India, a tax consultancy firm.

“While claiming exemptions and deductions, individuals should ensure that such deductions or exemptions claimed by them are in accordance with the receipts, invoices or other necessary documents maintained by them. In case a salaried employee receives a notice for reporting fake deductions, it is important for such taxpayer to take action immediately,” says Vipul Jai, Partner, PSL Advocates & Solicitors, a law firm.

When can you receive a notice?

According to experts, you can receive a notice if the Income Tax Department finds any mistakes in your ITR.

“This notice will be sent if there are discrepancies between the deductions you mentioned in your return and the TDS certificate from your employer (Form16). It will also be sent if your taxable income is lower than in previous years,” says Abhishek Soni, CEO & Co-founder of Tax2win by Fisdom.

How much time do you get to respond?

After receiving a notice, the taxpayer generally gets 15 days to reply. However, they can request the local Assessing Officer for an extension of the deadline in case they are unable to respond within the set time frame. “The taxpayer will get a notice and has 15 days to reply. If they need more time, they can ask the officer for an extension,” says Soni.

How to respond to Income Tax Notice: Steps to follow

Jain suggests following steps salaried individuals should follow after receiving a notice.

1. Don’t Ignore It: Ignoring a notice from the Income Tax Department can lead to serious legal consequences. Be sure to respond within the timeframe mentioned in the notice.
2. Read Carefully: Understand what the notice is about. It will typically contain specific details regarding the discrepancies or issues that have been identified.
3. Collect Necessary Documentation: Gather all relevant documents and information that could support your case or explain the discrepancies noted in the notice.
4. Consult a Professional: It may be wise to consult with a Chartered Accountant (CA) who specializes in income tax matters. They can help you understand the issue more clearly and guide you in preparing a proper response.
5. Draft a Response: If you choose to respond on your own, carefully draft a response addressing the issues raised in the notice. Be clear and concise, and provide evidence if necessary.
6. Submit the Response: Follow the instructions in the notice to submit your response. The response is usually required to be submitted online on the income tax portal.
7. Keep Records: Make sure to keep copies of all communications, including the original notice and your response, along with supporting documents.

Should you consult a CA or a lawyer?

Experts suggest professional guidance should be taken by taxpayers to respond to a notice from the Income Tax Department.

“It is advisable for the taxpayers to seek professional help and advice as not responding to such income tax notices in an appropriate manner may entail an unnecessary burden of taxes as well as penalty exposure,” says Dr Surana.

According to Soni, if the notice primarily relates to tax issues, such as fake deductions, exemptions, calculations, etc., a CA or lawyer is a suitable choice.

“CAs specialize in tax-related matters and can guide you through the complexities of tax laws and will guide you on how to respond. If the notice involves potential legal implications beyond taxation, such as legal disputes or potential legal actions, consulting a lawyer might be more appropriate,” he says.

Source: https://www.financialexpress.com/money/income-tax/how-to-respond-to-income-tax-notice-salaried-employees-income-tax-notices-how-to-reply/3202069/