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3 Must Do’s to avoid an Income Tax Notice

3 Must Do’s to avoid an Income Tax NoticeHave you receive a love letter from the Income Tax Department for Non-filing of your Income Tax Returns?

If yes, read on, and if no, then also read on as in case you are a Non-Filer, you may receive a Notice soon.

The Income Tax Department (ITD) is on an overdrive to nab tax evaders and one of the trigger points and red flags are the people who are not filing their Income Tax Returns year on year. The ITD has sent more than 10 lakh Notices already to Non-Filers and is in the process of sending a total of close to 25 lakh Notices. A large section of the Notices is to NRI’s.

So if you have received a Notice, or even if you have not, please follow the following steps to be compliant and avoid such ‘love-letters’:

  1. Appoint a Tax Advisor:  Depending on the Nature of the Income tax Notice and the volume of your Tax and Financial transactions, you should appoint an experienced and a qualified Tax Advisor. Please differentiate between Tax “Agents” and Tax “Advisors”. Your Insurance Agent is an Insurance “Agent” and NOT a Tax “Advisor”. It does not cost much, nowadays to appoint a permanent Tax Advisor who is qualified and experienced, who can advise you throughout the year on your Tax related issues and transactions and keep you compliant with law and very importantly save you large sums of monies by providing you qualified advisory. We have seen that over a period of time, a Personal Tax Advisor’s cost pays for itself through the Tax savings automatically.
  2. Get hands-on with your Documents: It often happens that we have some accounts that we have opened during our college days and we have for gotten about it or for that matter, when re-locating overseas, we have stopped filing our Returns. Or we have taken some monies from parents or friends into our accounts or lent some monies which we have not accounted for. Purchase of properties not declared, or maybe multiple properties which are vacant and unused. These are few of the instances, which are triggers for receiving Notices. There are off-course numerous other triggers and the idea is to minimize these factors moreover have a neat and clean accounts and filing. Most often in Scrutiny and Notices for individuals, penalties are imposed because you have not provided the details/documents/information in the IT Return which you may have actually overlooked or forgotten and the Income Tax Officer will construe it as an effort toward evasion. In a scrutiny, (if you have been to one, you will know) the IT Officer will require a very small pretext to nail you and you need to be sure to avoid the opportunity to him. Moreover, with the digitization of Banks, Tax Department, etc, most of the financial transactions details are already available with the ITO, hence you need to be sure of what you are declaring and what are you trying to conceal (if at all). Off-course, best advice is not to conceal and moreover with NRI’s most often there is no reason to conceal.
  3. Stop Tax Jugglery: You don’t work in a Circus and nor are you a Joker, so please stop experimenting with your Financials and Taxations. We have numerous instances where the smart husband purchases a property in Wife’s name or does a Fixed Deposit in Mother’s name. Hello, welcome back. The Tax laws are very clear and this jugglery does not help your taxes in any way. Rather it complicates your tax file as well as the other persons (wife or mother or whoever else). This jugglery actually works like a flag and is a trigger to receive a Notice. So rather than helping you it is increasing your probability of receiving a love letter from the ITO. There are quite a few provisions in the IT Act wherein you can get many benefits, hence get a proper advice and act accordingly and refrain from whimsical transfers and transactions.

Happy Taxes and stay away from such Love Letters!

I.T.A. No. : 319 and 320/Agr/2013 Order