What to do when you get Income tax Notice ?

Never ignore a notice received from the tax authorities. Do not panic and be compliant. Non-compliance with the notice or failure to produce the required documents could lead to a penalty of Rs 10,000 in addition to tax and penal interest. It is a myth that tax authorities are out to harass taxpayers to extract additional tax from them.

Check details :
Check the given details of notice i.e. your name, address, PAN number etc. It is possible that the notice was meant for someone who shares your name or date of birth. Go by the PAN even if there is a discrepancy in the name and address. The department issues notices according to PAN, not name. For electronic notices, check document identification number available on each communication with tax authorities.
Check sender’s details: A notice must have the name and designation of the officer, his signature, stamp, official address and should mention the income tax ward and circle.

Motive of the notice :
Understand motive of the notice. Why the notice has been sent to you.

Preserve envelope:
The envelope in which the notice is sent is an important piece of evidence. It will have the Speed Post number, which establishes when the notice was posted and served to you.
Make copies of notice: You can’t afford to lose the notice, so make photocopies and/or scan and store it on your computer.

Check the validity:
Check is whether notice is issued within the time limit permitted by the IT Act. A notice under Section 143(3) for scrutiny assessment has to be served within six months of the end of the financial year in which the return was filed. If served later than this period, it will be deemed invalid. However, a notice served under Section 148 can reopen a case even up to six years from the end of the relevant assessment year if the Assessing Officer has reasons to suspect income evasion. If the amount in question is less than Rs 1 lakh, only up to four-year-old returns can be reopened for scrutiny.

Should you Seek help?
Should you seek help from an expert when you get a notice? If the notice is simply about a factual matter, such as an arithmetical error, TDS mismatch or deduction amount, a taxpayer may respond on his own. But when it is a serious issue, such as a notice for scrutiny or reassessment under Section 148, one should get a professional to respond. It would cost money, but it would ensure that the matter is skillfully handled. A chartered accountant will be better equipped to deal with the situation and provide apt responses. But do understand what is being asked, why and how you are responding.

In any case make sure you respond within the deadline. Send whatever documents you can get and request for more time. This will establish that your intention is to comply with the notice. For example A scrutiny notice may ask for several documents, including bank statements, pay-slips, rent receipts and brokerage statements. While it may not be possible to put all this together in the short time, it is important to convey your intent to the tax department.

After collating all the information and documents, prepare a cover letter listing all the documents provided. Make copies of the letter and documents. Ask for an acknowledgement on the copy of the letter. Preserve this as evidence of the documents given. In case of a notice under Section 143(2), where the details required are not specified, collate basic information, like bank statements, major expenses, income and loan details.

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