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Business News/ Money / Calculators/  Importance of replying to tax notices in time
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Importance of replying to tax notices in time

Following the correct procedure will save time and lead to speedier resolution of disputes

Jayachandran/MintPremium
Jayachandran/Mint

Last month, the Central Board of Direct Taxes (CBDT) issued a circular dated 14 May explaining the procedure that a taxpayer should follow to respond to demands for arrears, verification or correction by an income tax assessing officer (AO). Though the facility has been available for long, CBDT’s explanation has come out recently, perhaps due to the fact that most taxpayers are not aware of it, or those who are, follow the wrong procedure.

There can be various reasons behind you getting an email from the income tax department asking for more tax to be paid, or informing you of a refund. Why does a taxpayer get a tax demand, and what should one do in such a case?

The tax department does not send an arrears notice only when there is a mistake in how you filed the tax return or when some taxes were not paid. There are other reasons as well. For instance, the demand may be raised due to a mistake made by the AO. For example, you may have made a mistake in filing the tax return, but also informed the tax authorities of it (this intimation or revision is covered under section 154 of the Income-tax Act, 1961). “The AO may not have considered or may have missed the section 154 petition filed by the taxpayer," said Sudhir Kaushik, co-founder and chief financial officer, Taxspanner.com, an e-filing and tax services portal.

An income-tax return (ITR) includes various details, and any of these can get filled wrongly. A taxpayer may have filled incorrect self-assessment tax challan details, tax deducted at source, tax deduction account number or any other detail. “Software errors like wrong mapping of data, could also lead to a difference. In such cases, ITR is correct but the computation by the tax department will have errors," said Kaushik.

There can be many reasons to a difference between what you have filed and what the tax authorities have, but only if there is a discrepency in the amount paid by a taxpayer as tax and what has been assessed by the department will there be a demand notice. “The prime reason for issuing notice of demand at the time of processing returns, is mismatch in tax credit, i.e., the difference between the amount of tax credit claimed by the taxpayer vis-a-vis the tax credit available in the records of the income tax authorities," said Vikas Vasal, partner-tax, KPMG in India.

Typically, after you have filed your return, the tax department does its own computation, and sends a notice to the taxpayer. You will receive the notice, through email, as “Intimation U/S 143(1) for PAN..." followed by the assessment year.

It illustrates the computation of income as per the return filed and by the department in separate columns. You can check for any discrepancies here. The notice also summarises and points out the tax outstanding or refund due. An SMS is also sent on the registered mobile phone number of the taxpayer.

If you get any email or SMS stating discrepancy, you must respond as soon as possible. “Generally, the arrears has to be paid within 30 days of receiving the demand notice," said Vasal.

In your response you can agree or disagree with the notice. “If the taxpayer does not respond to the notice of demand, then she is liable to penal consequences such as interest, besides the tax demand," added Vasal.

In case you receive an intimation that shows a mismatch between the return filed by you and as assessed by the department, a particular response procedure has to be followed.

Access your account on www.incometaxindia.gov.in, by putting your ID, password and date of birth. Once you login, under the head “My Account", you can see the refund and demand status. Or, after logging in, you can click on the “My Pending Actions" tab on the dashboard. Apart from these, you can also click on “Worklist" and then “For your action" to see if any such demand or arrears are there for you.

To respond to any such intimation, go to the “Response to Outstanding Tax Demand" tab, select the correct assessment year, and click on “Submit".

Then one has to select among these options (based on whether you agree or disagree with the tax authority)—demand is correct, demand is partially correct or disagree with demand.

If you think the demand raised by the tax department is correct, then click on the option “demand is correct".

If any refund is due, outstanding demand along with interest is adjusted against it. If some amount is still due from the taxpayer’s side, she has to immediately pay it.

The second option is: “Demand is partially correct". In this case, you have to enter the correct and the incorrect amounts, along with reasons.

The third choice is: “Disagree with demand".

In the latter two choices (partially or fully disgaree), taxpayer has to mandatorily give one or more reasons as to why the demand is incorrect. The reasons could be that the amount has already been paid, or that the rectified or revised return has been filed. If the amount has been paid, include details such as challan identification number, date and amount paid. Include similar details if revised return was filed. If the demand from the tax authorities has already been reduced by an appellate order but is not implemented, the taxpayer can point it out.

In essence, you need to provide additional information for why you disagree with the tax authority’s assessment.

Once you successfully submit your response, a transaction ID is generated. You can click on the “View" link under the response column to see what you have submitted.

If a taxpayer has not registered for e-filing, she can register and see the information. “This facility (online response) is available for taxpayers whose manual return has been uploaded by the tax department into the online system. Else, the response has to be filed with the jurisdictional AO," said Vasal. Once you respond and submit the clarification, the tax department will verify the information and reduce, remove or confirm the demand, according to the procedure and instructions issued by CBDT. Details have also been reiterated in the circular.

In the past few years, the income tax authorities have taken various steps to make income tax filing a smoother and speedier process. It is gradually moving towards an entirely online system. The recent circular on what a taxpayer needs to do to respond to a demand from the department is a step in that direction. All returns will eventually have to be filed electronically; it’s just a matter of time.

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Published: 31 May 2015, 07:09 PM IST
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