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Avoid Receiving Tax Notice

Income Tax Department has launched a drive to ensure greater tax compliance. In recent months, thousands of taxpayers have been served notices after discrepancies were noted in their tax returns or their TDS details. This sudden rise in the number of tax notices is not because people have stopped paying tax or filing their returns. It's just that the tax authorities now have an integrated database on taxpayers and can track almost all financial transactions of an individual. The 10-digit alphanumeric PAN, which has been made mandatory for most money transactions, allows the tax department to peek into your financial life. The PAN not only tells the tax department how much you have earned, but also how you have been spending and investing that money. Besides, the Central Board of Direct Taxes has a computer-aided scrutiny system (CASS), which flags any discrepancy in the tax return filed. Here are some common reasons for the taxpayers getting notices.

v  Not mentioning PAN or quoting incorrect PAN: The PAN is now mandatory for high value transactions. If you do not submit it while making an investment or taking up a job, your income will be subjected to a higher TDS of 20 per cent, instead of 10 per cent. If the PAN is incorrect, you could even be slapped with a penalty of up to 10,000. The bigger problem of an incorrect PAN is that the TDS will not be credited to your account. This often results in an additional tax demand. Also, the tax refund can be credited to another account if you submit the wrong PAN.

v  Not checking Form 26AS before filing: The Form 26AS has details of the tax paid by an individual during a financial year which can be easily accessed online. Some banks also provide this facility to their Net banking customers. Before you file your return, check whether your Form 26AS has correctly credited the tax deducted on your behalf. If your bank, bond issuer or employer has deducted TDS, make sure it is mentioned in your Form 26AS. Also, check whether all the investments with TDS have been duly mentioned in the tax return. Any mismatch leads to a notice from the department.

v  Mismatch in income and expenses & investments: Financial services firms, registration authorities and merchant establishments are supposed to report certain high-value transactions to the CBDT. The CASS matches this information with the returns filed by the taxpayer and promptly issues a notice if there is a mismatch. The Income Tax Department gets all information about high-value financial transactions on the basis of the PAN that you submit to your bank, share broker, mutual fund house and registrar of properties. If the income you have declared is not matching your investments and spending, you can get a tax notice.

v  Not filing returns if income is above Rest. 2 lakh: If your gross taxable income before deduction under any section is above Rs 2 lakh, it is mandatory for you to file your return. If you don't file it, you can be slapped with a penalty of up to 300 per cent of the outstanding tax. Even if there is no tax liability, the return has to be filed if the income before deductions (tax savings, education loan, home loan, etc) is above the basic tax exemption.

v  Not filing return by the due date: You can file your income tax return till the end of the assessment year if there is no tax due. For example, the tax return for 2012-13 can be filed till 31 March 2014 without incurring any interest or penalty if all the taxes have been paid. However, if some tax remains unpaid, filing your return after the deadline could lead to a penalty of Rs 5,000. Also, you are not allowed to carry forward your losses if you file after the due date, nor can you revise the tax return.

v  Not declaring the previous employer's income: This is a common problem and was easily missed by the tax authorities in the past. However, now that the tax database has been integrated, don't think you can ignore your income from a previous job. If your employer deducted TDS on your income, the details would be in your Form 26AS, and the CASS will immediately flag this discrepancy. You can be levied a penalty of up to 300 per cent of the tax evaded.

v  Avoiding TDS by misusing Forms 15G and 15H: If the interest income on bank deposits exceeds Rs 10,000 a year, the bank deducts TDS. You can avoid TDS by submitting Form 15G or 15H if you are not liable to tax. However, if you are trying to avoid TDS, you can get a notice from the tax department. Submitting a wrong declaration can invite a penalty of Rs 10,000. Splitting the deposits in different banks or bank branches to avoid TDS will not help as the PAN is the same.

v  Not declaring interest on bank deposits and post office savings: The interest earned on bonds, fixed deposits, recurring deposits and savings accounts is taxable and should be mentioned in your tax return. Up to Rs 10,000 earned on your savings bank account is tax-free, but it still needs to be included in your total income for the year. Likewise, the PPF interest income is tax-free, but should be included in the exempt income. The following deductions are available on bank interest: interest on savings account is exempt up to Rs 10,000 for the assessment year 2013-14. The interest from post office savings is exempt up to Rs. 3,500 or Rs 7,000 for joint accounts.

v  Not responding to intimation/notice from the tax department: Don't ignore the messages and notices from the tax department. If you do not respond, the interest and penalty keeps on increasing in case of any pending tax liability and the Income Tax Department will take a final decision that may not be beneficial for you.

TDs on Purchase of Immovable Property effective from 1st June 2013

Any person purchasing immovable property of Rs. 50 lakh or more is required to deduct tax @1% from the payment to the seller (other than rural agricultural land).

è Step : 1  Deduct TDS

·        Deduct Tax @ 1% from the payment made to the seller

·        Collect the Permanent Account Number (PAN) of the seller & verify the same with the Original Pan Card.

è Step : 2 Online filing of statement at www.tin.nsdl.com

·        It is mandatory to furnish the PAN of seller as well as the purchaser while providing the information regarding the sale transaction in the online form (Form No. 26QB)

·        Please insure that there is no error quoting the PAN or other details in filing online Form 26Q

è Step : 3  Depositing the tax deducted

·        Deposit the tax deducted through e-payment only, either at the time of filling of form 26QB or subsequent to it, e-payment can be made using electronic payment facility at any authorized bank, including self-net banking facility.

·        In case the payment of tax deducted is made subsequent to the filling of Form 26QB, pay using electronic payment facility at any authorized bank within 7 days after online filling of statement at www.tdscpc.gov.in

·        If there is a delay beyond 7 days in payment of tax, the statement filed online would be treated as “Invalid” in that case. Form 26QB, will need to be filed again

è Step : 4 Issue of TDS Certificate

·        Download TDS certificate from TRACES (www.tdscpc.gov.in)

                        RESPONSIBILITY OF THE SELLER OF THE IMMOVABLE PROPERTY

·        Provide PAN to the purchaser for furnishing information regarding TDS to the Income TAX Department.

·        Verify deposit of taxes deduct by the Purchaser in your form 26AS Annual Tax Statement.

v  TAN NOT REQUIRED

            TAN of the deductor is not required for the payment and reporting of the Tax deducted under this section and PAN allocated to the deductor shall be used for payment and reporting of TDS made under this section.