Received an Income Tax Notice? Don't Panic, Here's What to Do

Receiving an income tax notice (ITR notice) can be a stressful and confusing experience, but it is important to stay calm and take the necessary steps to resolve the issue. Whether you have made a mistake on your tax return or the government believes you owe additional taxes, there are ways to handle the situation and come to a resolution. In this article, we will discuss what to do when you get an income tax notice and provide tips on how to navigate the process.

According to Suneel Dasari, founder and CEO of EZTax.in, taxpayers may receive ITR notices under various sections of the Income Tax Act, 1961, such as Section 139(9), 143(1), 143(2), 143(3), 245, 144, 147, 148, 156 (income tax demand notice). This can be due to a range of issues, such as failing to file income tax returns, delay in tax filing, claiming invalid tax refunds, concealing taxable income, claiming excessive tax losses, showing lesser taxable income and more.

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Step-by-step guide for an individual to stay calm and take appropriate action:

• On receiving the income tax notice, it is important for an individual to verify their name, PAN number, and the assessment year. Note down the name and designation of the issuing officer.
• Read down the notice word by word very slowly and with a balanced mind. Try to understand why the notice has been issued.
• There are two columns in the new intimation format. If a row has two different figures in these two columns, this is the cause of the problem.
• One can respond to an ITR notice by going to  www.incometaxfiling.gov.in and accessing their tax filing account. For each ITR notice, one needs to follow a particular procedure. Once an individual receives such an email, s/he needs to go to their income tax account under ‘My Account.’ S/he can check the status of the refund and demand here. Once logged in, s/he should go to either the 'My Pending Actions' tab of the dashboard or the 'Worklist' and then select the 'For your action' option to view any outstanding demands or arrears.
• To reply to any notice, one needs to visit the ‘Response to Outstanding Tax Demand’ tab. Then, the correct assessment year should be selected and clicked on ‘Submit.’ From the available options, the individual should select whether they believe the demand is correct, partially correct, or if they disagree with the demand.
• If an individual believes that the demand raised is accurate, they should click on ‘demand is correct.’ If there is a refund due, the outstanding demand, along with interest, will be adjusted against it. If there is still an unpaid tax, it must be paid immediately. If the demand is considered "partially correct," the correct and incorrect amounts should be entered, along with the reasons for the discrepancy.
• If an individual clicks on ‘disagree with demand,’ they will have the option to partially or fully disagree. They are required to provide one or more reasons why they believe the demand is incorrect.
• Once the response is successfully submitted, a transaction ID will be provided. To review the submission, the individual should click on the ‘view’ link under the response column. It is also recommended to contact the designated assessing officer for further clarification.
• If the notice is manageable, the individual may be able to respond to it on their own, otherwise, professional assistance is recommended. Failure to respond to the tax notice within the specified time frame may result in various consequences. Noncompliance with an ITR notice may incur a penalty of up to Rs 10,000, interest, or a maximum of the total due, and may lead to judgment assessment by the IT officer. Prosecution for up to a year may be imposed in some cases.
• In case, more time is needed to respond, the individual can request an adjournment, but it is up to the discretion of the tax officer to grant the request.

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Receiving an income tax notice can be a stressful and confusing experience, but it is important to stay calm and take the necessary steps to resolve the issue

Disclaimer: This article is intended for general information purposes only and should not be construed as investment or legal advice. You should separately obtain independent advice when making decisions in these areas.