Income Tax Archives

Budget 22-23 puts an end to Bonus Stripping for Tax Planning

Finance Minister Nirmala Sithraman in Union Budget 2022-23 has taken away one of the popular tax planning mechanisms called bonus stripping.

From April 1, 2023, investors who previously used a technique known as bonus stripping to reduce their tax liability could no longer do so. It is because of a change in the Income Tax Act that was introduced in the Union Budget 22-23.

This article will look at bonus stripping and how it works.

What is Bonus Stripping, and how does it work?

Bonus stripping occurs when shares or mutual funds are purchased and sold in a way that results in a short-term capital loss that can help to offset capital gains.

So, in this scenario, an investor buys units or shares at a higher price to sell them at a lower price.

Let us take a simple example to explain bonus stripping.

Assume that an investor buys 100 shares of a corporation at Rs 100 per share. After some time, they publicly announce that they are going for a 1:1 bonus issue. As one share is now split into two shares, the share price of the company’s share gets priced to Rs 50. Now, the person has a total of 200 shares.

The person might sell the original 100 shares at Rs 50 each. As per the current rules, they can record this sale of shares as a loss because they bought a single share of the company at Rs 100 and sold it for Rs 50.

So, the investor can use the loss of Rs 5,000 (Rs.100*100â€“100*50) to offset any capital gains from other transactions.

We also need to keep in mind that the investor still owns the 100 shares they received as a bonus. They may stay invested for one year to take advantage of the LTCG tax on equity units, which is taxed at 10% on gains over Rs 1 lakh.

Budget bans Bonus Stripping

The Income Tax Act currently has a clause prohibiting the set-off of losses suffered through bonus stripping against other capital gains to deter investors from engaging in such practices.

According to Section 94 (8) of the Income Tax Act, if units are purchased within three months of the bonus issue’s record date and sell some units within nine months of the record date, the loss incurred shall be ignored. But till now, the anti-avoidance portion of section 94(8) only applied to mutual fund units.
With the latest budget announcement, in addition to mutual funds, the equity shares and units of InvITs, REITs and other alternative investment funds would also not be allowed to offset the losses arising out of the bonus issue against other gains.

The budget has also recommended revising the definition of units to incorporate units of new pooled investment vehicles such as InvITs, REITs, and AIFs.

Another similar concept is dividend stripping. Under dividend stripping, the investors hope to profit from capital losses resulting from post-dividend stock sales at a reduced price. However, as dividends are now taxed in the hands of the shareholder, dividend stripping is no longer relevant.

These changes will take effect on April 1, 2023, and will apply to the assessment years 2023-2024 and the following years.

4 key changes in Union Budget 22-23 for investors

Union Finance Minister Nirmala Sitharaman announced the Union Budget 2022 on Tuesday. While there were no changes in the income tax slab or standard deductions, the budget announced some reforms for digital assets, and also relaxation in the correction of ITR filings. Â

Let us look at the announcements made by the Finance Minister that relate to investments and may be helpful for investors.

Launch of digital rupee

The Indian government has been discussing launching a digital currency for quite some time. It looks like it might finally see the light of the day.

In today’s budget, finance minister Nirmala Sitharaman announced that the government is planning to launch a digital rupee based on blockchain and other technologies in the financial year 2022-23. The Reserve Bank of India will issue it.

“The introduction of central bank digital currency will give a big boost to the digital economy. Digital currency will also be a cheaper and more efficient currency management system,” the finance minister said today.

This move comes after the RBI voiced its concern regarding the rise of private cryptocurrencies and its frenzy among individuals.

Tax on cryptocurrency

The tax on gains from digital assets, i.e., cryptocurrency, had lacked clarity.

However, in this budget, the Finance Minister announced that the profits from digital assets would fall in the highest tax bracket of 30%. She also mentioned that the crypto investors could not set off in case of losses. Moreover, only the acquisition cost would be included while calculating the income from digital assets.

As per her speech, 1% TDS will also be deducted on the transfer of digital assets. The person receiving the digital assets as gifts will also have to pay tax.

Tax deduction on NPS for state govt employees increased to 14%

People who work for the state governments will get a tax break of 14% on the NPS contributions made by their employer, which is the state government. Currently, state government employees can get a tax break of 10% for their employer’s contribution. This new update will start in FY 2022-23.

Currently, only the people who work for the central government can get a tax break of 14% for money the central government puts into their NPS account.

The goal is to ensure that the state and central government employees get the same tax benefits for their employer contributions.

Contribution to NPS can reduce taxable income in three different ways.

Section 80CCD allows you to deduct up to Rs 1.5 lakh in NPS contributions in a single financial year. This deduction is limited to Rs 1.5 lakh under section 80C’s maximum limit.

Section 80CCD(1B) allows for an extra deduction of up to Rs 50,000.

Besides the Rs, 2 lakh maximum, any contribution from the employer is deductible under section 80CCD (2) of the Act.

Your employer’s contribution to your NPS account is the only tax break available under both the new and old tax regimes.

Opportunity to correct an error in income tax Â

The budget also announced that taxpayers can now file an updated return within two years from the relevant assessment year.

“We have further simplified the tax system. Introducing a new updated return where people can file updated returns within two years of the filed IT Return,” the Finance Minister said.

This means that the individual taxpayers will have more time to complete revised income tax returns if they have missed disclosing income at the time of filing.

Currently, an individual has until December 31 (unless the government extends the deadline) to amend their ITR to provide a complete picture of the income obtained from various sources during the fiscal year. Taxpayers will have two years from the end of the relevant assessment year to file their proper ITR.

The new I-T annual information statement, and how it affects you as a taxpayer

The Central Board of Direct Taxes (CBDT) has issued a notification stating that several additional details will now be populated in the Annual Information Statement (AIS) in Form 26AS. This includes foreign remittances, interest on income tax refund, off-market transactions, dividend income earned through mutual funds and purchase of mutual fund units. Clearly, the tax department is trying to put as much financial data as possible and will then track people who did not pay due taxes on such transactions. Here are more details on the topic.

What is AIS

At present, Form 26AS is detailed by the Tax Department. It is a consolidated annual tax statement that includes information on tax deducted/collected at source, advance tax, and self-assessment that is available on the Income-Tax website against a taxpayerâ€™s Permanent Account Number (PAN).
Form 26AS is the tax passbook of an individual. It contains details of the tax deducted and deposited against the PAN of an individual during a financial year.

Why new AIS

The Budget for 2020-21 had announced the revised Form 26AS. This will now give a more comprehensive profile of the taxpayer.
Mutual fund investments exceeding Rs 10 lakh is required to be reported in Form 26AS as per the amended version from last year.
Similarly, dividend income has become taxable from FY 2020-21 and tax has to be deducted on it if it exceeds Rs 5,000 in a financial year. Thus, any tax deducted on dividend income in the last year must be reflected in Form 26AS.

What’s new

The revised AIS includes additional categories of information of interest, dividend, securities transactions, mutual fund transactions, and remittances from abroad. Besides, there will be information on many other transactions that are at present available with the Income Tax Department.
Form 26AS will continue to exist until the new AIS is validated and is completely operational.
The recent inclusions will make Form 26AS as a ready reckoner for all financial transactions.

What taxpayers have to do

The new AIS can be accessed by clicking on the link â€œAnnual Information Statement (AIS)â€ under the â€œServicesâ€ tab on the new Income tax e-filing portal (https://www.incometax.gov.in).
If you as taxpayer feel that the information is incorrect, relates to another person/year, is a duplicate etc., there is no need to panic.Â
There is a facility to submit feedback online. Feedback can also be furnished by submitting information. An AIS Utility has also been provided for taxpayers to view AIS and upload feedback in offline manner.
If the taxpayer submits feedback on AIS, the derived information in TIS will be automatically updated in real time, and that information will be used for pre-filing of returns.Â
Taxpayers have been asked to check all related information, and to report complete and accurate information in their Income Tax Returns.

Last date to file income tax returns extended to December 31

The Central Board of Direct Taxes (CBDT) has extended the deadline for filing of income-tax returns for FY 2020-21 to December 31, 2021. This is the second time the ITR filing deadline has been extended. It was previously extended to September 30 from July 31.

â€œThe due date of furnishing of Return of Income for the Assessment Year 2021-22, which was 31st July, 2021 under sub-section (1) of section 139 of the Act, as extended to 30th September, 2021 vide Circular No.9/2021 dated 20.05.2021, is hereby further extended to 31st December, 2021,â€ said a statement released by the Union Finance Ministry.

On consideration of difficulties reported by the taxpayers and other stakeholders in the filing of Income Tax Returns and various reports of audit for the Assessment Year 2021-22 under the Income-tax Act, 1961 (the â€œActâ€), the Central Board of Direct Taxes has decided to further extend the due dates for filing of Income Tax Returns and various reports of audit for the Assessment Year 2021-22.

The due date of furnishing of Return of Income for the Assessment Year 2021-22, which was July 31, 2021, under sub-section (1) of section 139 of the Act, as extended to September 30, 2021, is hereby further extended to December 31, 2021.

The due date of furnishing of Report of Audit under any provision of the Act for the Previous Year 2020-21, which is September 30, 2021, as extended to October 30, 2021, is now further extended to January 15, 2022;

The due date of furnishing Report from an Accountant by persons entering into an international transaction or specified domestic transaction under section 92E of the Act for the Previous Year 2020-21, which is October 31, 2021, as extended to November 30, 2021, is now extended to January 31, 2022;

The due date of furnishing of Return of Income for the Assessment Year 2021-22, which is October 31, 2021 under sub-section (1) of section 139 of the Act, as extended to November 30, 2021, is hereby further extended to February 15, 2022.

The due date of furnishing of Return of Income for the Assessment Year 2021-22, which is November 30, 2021, under sub-section (1) of section 139 of the Act, as extended to December 31, 2021, is now further extended to February 28, 2022.

The due date of furnishing of belated/revised Return of Income for the Assessment Year 2021-22, which is December 31, 2021, under sub-section (4)/sub-section (5) of section 139 of the Act, as extended to January 31, 2022, is hereby further extended to March 31, 2022.

Do note that the extension of the dates as referred above in cases where the amount of tax on the total income as reduced by the amount as specified in clauses (i) to (vi) of sub-section (1) of that section exceeds rupees one lakh.

Tax exemption for expenditure on Covid treatment, ex-gratia on Covid death

The Government has granted further extension of timelines of compliances under Income Tax Act. It has also announced tax exemption for expenditure on COVID-19 treatment and ex-gratia received on death due to COVID-19. The details are as follows.

Tax exemption for Covid treatment

Many taxpayers have received financial help from their employers and well-wishers for meeting their expenses incurred for treatment of Covid-19. In order to ensure that no income tax liability arises on this account, it has been decided to provide income-tax exemption to the amount received by a taxpayer for medical treatment from employer or from any person for treatment of Covid-19 during FY 2019-20 and subsequent years, the government said.

Tax exemption to dead Covid victims

Unfortunately, certain taxpayers have lost their life due to Covid-19. Employers and well-wishers of such taxpayers had extended financial assistance to their family members so that they could cope with the difficulties arisen due to the sudden loss of the earning member of their family.

In order to provide relief to the family members of such taxpayer, it has been decided to provide income-tax exemption to ex-gratia payment received by family members of a person from the employer of such person or from other person on the death of the person on account of Covid-19 during FY 2019-20 and subsequent years. The exemption shall be allowed without any limit for the amount received from the employer and the exemption shall be limited to Rs 10 lakh in aggregate for the amount received from any other persons, said the government,

Extension of timelines

In view of the impact of the Covid-19 pandemic, taxpayers are facing inconvenience in meeting certain tax compliances and also in filing response to various notices. In order to ease compliances to be made by taxpayers during this difficult time, reliefs are being provided. We are highlighting a few extensions here.

* TDS statement – The Statement of Deduction of Tax for the last quarter of the Financial Year 2020-21, required to be furnished on or before 31st May, 2021 under Rule 31A of the Income-tax Rules,1962 (hereinafter referred to as â€œthe Rulesâ€), as extended to 30th June, 2021 vide Circular No.9 of 2021, may be furnished on or before 15th July, 2021.

* TDS certificate – The Certificate of Tax Deducted at Source in Form No.16, required to be furnished to the employee by 15th June, 2021 under Rule 31 of the Rules, as extended to 15th July, 2021 vide Circular No.9 of 2021, may be furnished on or before 31st July, 2021.

* Section 54 compliance – The compliances to be made by the taxpayers such as investment, deposit, payment, acquisition, purchase, construction or such other action, by whatever name called, for the purpose of claiming any exemption under the provisions contained in Section 54 to 54GB of the Act, for which the last date of such compliance falls between 1st April, 2021 to 29th September, 2021 (both days inclusive), may be completed on or before 30th September, 2021.

* 15G/15H documents – Uploading of the declarations received from recipients in Form No. 15G/15H during the quarter ending 30th June, 2021, which is required to be uploaded on or before 15th July, 2021, may be uploaded by 31st August,2021.

* Aadhaar and PAN linkage – Last date of linkage of Aadhaar with PAN under section 139AA of the Act, which was earlier extended to 30th June, 2021 is further extended to 30th September, 2021.

Top changes in Income Tax Return forms for assessment year 2021-22

The Central Board of Direct Taxes (CBDT) has notified Income Tax Return (ITR) Forms for the Assessment Year 2021-22 vide Notification No. 21/2021, dated 31-03-2021. Most of the new ITR forms changes are consequential to the amendments made by the Finance Act, 2020 to the Income-tax Act. Did you know that ITR-1 shall not be available to a taxpayer in whose case the tax has been deducted on cash withdrawal under Section 194N? Did you know return filing is also not allowed in ITR-1 or ITR-4 if the tax has been deferred in respect of ESOPs allotted by an eligible start-up? In this article, we take a look at the top changes in Income Tax Return forms for assessment year 2021-22.

ITR â€“ 1 and ITR â€“ 4 cannot be filed in case of deferment of tax on ESOPs

According to Taxmann, the Finance Act, 2020, has allowed to defer the payment or deduction of tax on ESOPs allotted by an eligible start-up referred under Section 80-IAC. The tax is required to be paid or deducted in respect of such ESOPs within 14 days from the earliest of the following period:
(a) After expiry of 48 months from the end of Assessment year in which ESOPs are exercised;
(b) From the date the assessee ceases to be an employee of the organization; or
(c) From the date of sale of shares allotted under ESOP.

Consequently, Rule 12 has been amended to provide that an assessee in whose case payment or deduction of tax in respect of such ESOPs has been deferred shall not be eligible to furnish his return of income in ITR-1 and ITR-4. Corresponding changes have been made to ITR-1 and ITR-4.

In this ESOP connection, do note that if an employee has received ESOPs from an eligible start-up referred to in Section 80-IAC in respect of which the tax has been deferred, the Part B of Schedule TTI (Computation of tax liability on total income) seeks the disclosure of the tax amount which has been deferred in this respect. The ITR Form does not provide any guidance on the computation of the tax to be deferred. In such a situation, the tax to be deferred can be computed in accordance with suitable guidance.

ITR â€“ 1 cannot be filed in case tax has been deducted under Section 194N

This is for ITRs 2 to 7.

Section 194N provides that every banking company (including any bank or banking institution), co-operative bank or a post-office, which is responsible for payment of cash to a person, from one or more accounts maintained by him, shall be required to deduct tax under this provision. Tax under this provision is required to be deducted if the amount of cash withdrawn during the year exceeds Rs 20 lakh in case of certain nonfilers of return and Rs. 1 crore in other cases.

Rule 12 of the Income-tax Rules has been amended to restrict an assessee, in whose case tax has been deducted under this provision, from furnishing return of income in ITRâ€“1. Consequential changes have been made to ITR-1.

In this connection, do note now there is no option to carry forward TDS deducted under Section 194N. Section 199 read with Rule 37BA provides that credit for tax deducted at source shall be given in the assessment year in which such income is assessable. However, where such income is assessable over a number of years, credit for tax deducted at source shall be allowed across those years in the same proportion in which the income is assessable to tax. However, in case of tax deducted under Section 194N, credit for tax deducted shall be allowed in the assessment year relevant to the previous year in which such tax has been deducted. In other words, the TDS deducted under Section 194N shall not be allowed to be carried forward to subsequent years.

Consequential changes due to change in taxability of dividend income

This is for ITRs 1 to 7. The Finance Act, 2020 reverts to taxation of dividends in the hands of the recipient shareholders instead of payment of dividend distribution tax (DDT) on declaration, distribution or payment of dividend by the domestic company. Thus, no DDT shall be payable by the company or mutual fund on any dividend distributed on or after 01-04-2020 and the recipient shall be liable to pay tax on such dividend income.

As per Taxmann, sections 10(34), 10(35), 115-O, 115-R, 115BBDA, etc. have been amended to bring the suitable changes in the Act. The new ITR forms notified for the Assessment Year 2021-22 have been amended to incorporate these changes.

Increase in threshold limit for tax audit

This is for ITR 3 and 6. As per the provisions of section 44AB an assessee shall get the books of accounts audited if itâ€™s gross turnover or receipts during the relevant previous year exceeds Rs 5 crore if the following conditions are satisfied:
(a) Cash receipts, including amount received for sales, turnover or gross receipts, does not exceeds 5% of the aggregate amount received during the previous year; and
(b) Cash payments, including amount incurred for expenditure, does not exceed 5% of the aggregate amount paid during the previous year.

The ceiling of Rs 5 crore has been increased by the Finance Act, 2021 to Rs 10 crore with effect from the assessment year 2021-22.

Previous ITR required the assessee to furnish whether during the year total sales/ turnover/ gross receipts of business exceeds Rs 1 crore but does not exceed Rs 5 crore. Necessary amendments have been brought in the ITR forms as notified for assessment year 2021-22 to enhance the limit.

How to calculate your taxable income

Income from salary is the most common income that individuals earn. It is the total of your basic salary and will include House Rent Allowance (HRA), Special Allowance, Transport Allowance and any other allowances. However, there are components of your salary that are exempt from tax. These include telephone bills reimbursement, leave travel allowance, etc. If you donâ€™t have a house of your own and you live on rent, you can get an exemption on your HRA.

There is the standard deduction of Rs. 40,000 was introduced in budget 2018 that you can claim as exemption. This deduction has been increased to Rs. 50,000 in the Union Budget 2019. If you wish to opt for the new tax regime, the standard deduction exemption will not be available to you.

Income tax calculation

Here are the income tax calculations under the present tax regime and the new tax policies (optional). Letâ€™s say Rahul gets a basic salary of Rs 1,17,000 per month. The HRA that he gets is Rs. 45,000. He gets a special allowance of Rs. 21,000 per month and LTA of Rs. 16,000 annually. Rahul pays a rent of Rs. 40,000 and lives in Chennai.

Income	Amount (Rs.)	Exemption/Deduction (Rs.)	Taxable income (Old regime)	Taxable income (New regime)
Basic Salary	14,04,000	–	14,04,000	14,04,000
HRA	5,40,000	3,60,000	1,80,000	5,40,000
Special Allowance	2,52,000	–	2,52,000	2,52,000
LTA	16,000	13,000 (amount for which bills were submitted)	3,000	16,000
Standard Deduction	–	50,000	50,000	–
Gross Total Income from Salary			18,89,000	22,12,000

Once you have your income from salary, you need to include other income. These include income from house property, income from capital gains, income from business/profession, income from other sources like saving account interest income, fixed deposit interest income and interest income from bonds.

For income from house property, calculate the Gross Annual Value (GAV) of your rented house property. For this, take into consideration the Fair Market Value (FMV) of your property and the valuation as estimated by municipal authorities. The amount that is higher in value can be taken as expected rent.

You need to compare the rent that you receive with the expected rent and you will have the GAV for the house. Then, you need to compute the Net Annual Value (NAV) of your property by deducting the municipal taxes that you paid during the year.

Deduct the amount from the NAV to see if there is income from your housing property. Note that 30% of the NAV will be the interest paid annually on the housing loan amount (if you had taken a loan to purchase the property).

For calculating income from capital gains, you need to understandthe nature and number of transactions that involved capital gains. First, you need to calculate the long-term capital gains from the total sale of assets. Then, you need to calculate the short-term capital gains from the total sale of capital assets. You can claim deductions and indexation benefit for long term capital gains for some capital assets. Calculate that tax to be paid on the capital gains.

You need to provide all the relevant income in your income tax form. Tax Deducted at Source (TDS) will be available on your income tax return. This will get deducted from the actual taxes you need to pay. You can claim refund of TDS if you are in the lower tax bracket.

If you need help calculating your taxes, get in touch with a Chartered Accountant. You can claim exemptions on investments such as tax saving mutual funds when you file your taxes.

Despite tax, VPF is still a good investment option

The latest budget proposed that interest earned on an employeeâ€™s annual contribution to the Employees Provident Fund (EPF) above Rs 2.5 lakh a year be taxed at the applicable tax slab.

Voluntary Provident Fund (VPF) is the contributions made by the employees that are over and above the minimum contribution set by the Employeesâ€™ Provident Fund Organisation (EPFO). However, the employer will not contribute more than 12 per cent of the basic salary, regardless of how much the employee contributes. So, many employees opt for VPF as they donâ€™t have to make any other investments and it’s easy as the amount is directly deducted from their salary.

As a result of tax on EPF contributions, there are concerns that VPF (Voluntary Provident Fund) which was hitherto a popular investment option for many employees with assured safety and tax free returns, may no longer be the favourite investment option. In such a scenario, many are looking for alternatives for employees who were investing more than Rs 2.5 lakh in EPF. But truth be told, tax or no tax, EPF is still a good vehicle for the debt portion of retirement savings. Here’s why.

Not final

Do note that the Budget proposal to tax interest on employeeâ€™s contribution to EPF of over Rs 2.5 lakh a year has not been notified yet. It could be subject to a review.

However, even if the proposal is notified as it is, the taxability of interest earned on EPF contributions will not make EPF an unattractive vehicle for your retirement savings.
There are two solid reasons why the VPF is still one of the best fixed income options. One, only the PPF offers higher interest than the VPF. But PPF has an investment limit of Rs 1.5 lakh in a year. If you want to invest more, the VPF is your best bet. Two, in the 30% tax bracket, VPF as of now would still give 5.85% returns, which is higher than what other fixed income options offer.

So far, the scheme has consistently credited more than market returns to its subscribers. The rates it has declared have also been quite resilient to ups and downs in economic conditions as well as the interest rate cycle.

Between FY15 and FY21, for example, the EPFâ€™s interest rate has dipped only marginally from 8.75 per cent to 8.5 per cent. Over the same period though, Indiaâ€™s repo rate halved from 8 to 4 per cent. The yield on the 10Â-year government bond has declined from above 8 per cent to 6 per cent.

Even assuming rates on the EPF are cut to 8 per cent for FY21, and this made taxable, this return would still compare extremely well to similar options such as the Public Provident Fund at 7.1 per cent and the GOI Floating Rate Taxable Bond at 7.15 per cent.

With the secular fall in rates arrested, one should expect returns on longÂ-term debt mutual funds to deliver lower returns over the next few years too. Therefore, tax or no tax, the EPF remains a good vehicle for the debt portion of retirement savings.

Diversify

Ideally, the VPF cannot be your only avenue to save towards retirement. There are uncertainties associated with the scheme.

1. You donâ€™t know if interest rates will be aligned with markets in future.
2. You don’t know whether the scheme will see further regulatory or tax changes to discourage higher income earners.

You must diversify your retirement savings across other avenues. Consider the following:

* PPF
* GOI Floating Rate bonds
* Bond offers from public sector entities

If you are to get to an adequately sized corpus by the time you retire, it would be essential to have a substantial equity component to your retirement portfolio.

In addition to your VPF contributions, consider investing in SIPs in good large and midcap, multicap or flexicap equity funds. Take the help of an advisor to track and review fund choices in future.

You can also consider SIPs in Nifty Next 50 and Nifty500 index funds.

Given that gold can smooth out portfolio returns and hedge against equity downside, some allocation to gold ETFs can be good too.

At the risk of repeating, the taxability or otherwise of the interest on VPF should only be a peripheral consideration to your retirement plan.

How to deal with an income tax notice

It is important to file your income tax return on time and you need to make sure that you use the right income tax form for filing your return. Any mistake or omission of income or any other non-disclosure of details in the income tax return can lead to an income tax notice.

There are many reasons why the income tax department sends notices and there are specific sections under which the income tax department sends notices. You need to understand the reason for such notices and respond appropriately within the stipulated deadline. If you get one, there is no need to panic. Stay calm and respond to the notice as a clarification to the query. Responding on time to these notices will help you avoid any penalties or legal action by the income tax department.

Here is the list of tax notices, why they are sent by the income tax department and how to respond to income tax notice.

Notice under section (u/s) 142(1)

Most of the time notices under this section are to ask the taxpayer to file returns for the assessment year for which the return has not been filed. However, this notice may be issued by the income tax department when they need more information on the return you filed.

The assessing officer could ask you, the taxpayer, for information about a tax return that you had filed earlier or it may be any documentary proof that is needed for the claims made. For instance, you might be required to produce your sales books, purchase bills, or proofs of any deductions availed by you, etc. This notice is issued before the assessment of the return that you had filed. You need to file the return or furnish the information requested.

Notice u/s 143(1)

Intimation after processing your income tax return is often sent under this section. This notice will be a statement from the income tax department that provides the income, deductions and tax details and states that the information is in line with the records available with the department. So, this is more of an acknowledgment by the income tax department.

Notice u/s 143(2)

Under this notice, the assessing officer may ask you to produce supporting documents for the claims made in the income tax return. This is sent in the financial year in which the return was filed. After the notice is received, you should reply to the queries raised by the income tax department and submit all the additional documents requested.

Notice u/s 139(9)

If the assessing officer believes that a defective income tax return has been filed, a notice will be served under this section. The defect in the return could be due to errors in using the ITR form, missing information, use of the wrong ITR form, etc. The notice will highlight the defect in the income tax return and will also recommend the solution. Taxpayers are given a period of 15 days to respond to the notice. If you do not respond, your return could get rejected.

Notice u/s 131(1A)

If the assessing officer thinks that you have concealed income while filing your return, you will get a notice under this income tax section. This is a summons or an intimation that the assessing officer will enquire into your income or the books of accounts. It empowers the tax authorities to demand the production of the necessary information or related documents. There is no specific time limit to serve this notice and you may need to present your documents to the assessing officer. You need to be prompt to comply.

Notice u/s 148

If the assessing officer feels that some information has been concealed in the return that was filed earlier, the return can re-opened for reassessment and a notice is sent under this section. You need to respond with the required information.

Notice u/s 245

This is an intimation that is usually issued when the tax refund for an assessment year is adjusted against any tax demand which is due. You need to make sure that the income tax return filed is in sync with the 26 AS tax credit statement.

Above mentioned notices are common in nature. If you donâ€™t want these notices, it’s good to file your return properly and carefully. However, even if you get an income tax notice you can respond to the notice online. Note that for the notices you can either reply using the e-proceedings section in your account on the income tax filing website or you can file a rectification return to correct the information in your tax return. Now that you know how to respond to an income tax notice online, you can do it in minutes.

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