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IT Returns & Notices

Income Tax Return & Notices – To be or not to be?

Due Dilligience

In the past couple of months more than 1,00,000 Notices have been sent by the Income Tax Department and many of you may have received these “love letters”

For the uninitiated, the Income Tax Department has sent out more than 1,00,000 Notices in the last few months, to non-filers (including NRI’s)  ie: people who have not filed their Income Tax Returns. As per the IT Department, there are more than 12,00,000 assesses (PAN Card Holders), which are on the list of non-filers and the Notices will continued to be sent in phases. These Notices have been sent after the Directorate of Criminal Investigation, Income Tax Department, has studied close to 5 crore financial transactions using various parameters to identify assesses who may not have obliged with their tax dues and tax duties.

This exercise has had good results for the Government, with an increase in tax filers and tax collections. To meet its tax targets, the Government is expected to continue this exercise with more enthusiasm and zeal on a continuous basis. Also, as per the Finance Bill 2013 proposals, failure to pay certain taxes can also lead to arrest of defaulters.

With the above mentioned widespread net and serious implications, I still fail to understand why do assesses fail to file IT Returns, especially NRI’s and Seafarers.

Quite a few NRI’s and Seafarers have received the above notice as often the majority are in a state total  “tax bliss”, ie: they believe that with an NRI status,

1.       they have NIL tax liabilities in India.

2.       they need not file Income Tax Returns in India


         NRI Tax Returns


The truth is however very different.

The basis of this false assumptions, lie in decades of tax practices of Accountants and the Department, which most NRI and Seafarer assesses interpreted for their conveniences.

a. As most Accountants do not have NRI/Cross Border taxation expertise, it has been common communication from them that the NRI has NIL tax liability in India and there is no requirement to file IT Returns.

b. The Department, never really looked into non-filers and hence NRI’s as the data and resources available with them did not enable them even to look into filed IT Returns in a proper manner. 

c.  The Assessee (ie: the NRI), conveniently interpreted both the factors and the assumption has passed on as inheritance from the previous generation, that as an NRI, there is NIL Tax and No IT Return.

Welcome back to reality.

This first lot of Notices is a strong ratification of what we keep telling our clients and prospective clients, (especially NRI’s and Seafarers) that, fine, you may have an NRI status and most of your income may be tax exempt, however you NEED to file Income Tax Returns and keep you house in order and avoid future harassment and penalties by the authorities. Moreover, our experience has been that 80% of the NRI’s filing their tax returns through us actually get a tax refund rather than having to pay taxes. Hence filing your tax returns could actually prove financially beneficial and profitable to you also other than keep you lawful.

The IT Department has immense resources at its disposal today, compared to previous decades, and with the digitization and integration of data across financial platforms it is relatively very easy for the IT Department to fish our any assesses financial details. The Department is using these tools, like never before, to hunt down evaders and defaulters. The implementation of the taxation obligations is only going to become stronger day by day, compared to the lax tax environment previously.

The Department can go to the extent of scrutinizing transactions like, jewellery purchase, foreign trips and even telephone bills other than property transactions and banking/investment transactions, not being commensurate with income shown in the Income Tax Returns.

Hence you now need to realize that honeymoon is over and get your tax file in order.

Filing your tax returns is a very convenient exercise nowadays and can be accomplished in less than 10 minutes from your office/residence itself. You just need to provide your documents (email/courier) to your tax consultant, (ie: if you are very lazy to actually go and meet your consultant) and your tax file will be taken care of, wherever you may be located in the world.

So please get your house in order as the harassment in terms of resources, time and effort to resolve a notice is not worth, as the same can simply be completely avoided by just filing your returns year on year, through a qualified and experience tax consultant.

The Government of India is not asking you to pay taxes on your income earned overseas as an NRI, however you may be liable to file your income tax returns. Hence to avoid these unnecessary penalties and harassment, file your IT Returns year on year.


Basic Action Plan for “Notice Protection”

1.       If you have not been filing your IT Returns and if you have not received a Notice yet, before uncorking the Champagne, please check, what is the address that the Department has for you and for your PAN Card, as these Notices have been sent physically and you may have received the Notice at your previous address?

2.       Contact a qualified and experienced Tax Consultant immediately and apprise the consultant of your financial background to seek advice on your tax status and for filing returns in the most appropriate manner possible.

3.       Religiously, file your Income Tax Returns, every year, without fail, even if you have close to NIL income in India.