What Are the Five Indian Income Tax Notices & How to Avoid Them?

In recent years you might have come across or heard about NRIs receiving notices related to non-filing of ITR or error with respect to TDS under the heading e-campaign notices on most of the high value transactions.

In this blog you will find answers related to what these notices are, the proper way of responding to such notices.

And most importantly you will understand why timely and accurate reporting of your income tax returns is crucial.

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What is Scrutiny Assessment?

Once you submit your income tax returns for the said year, the Indian Income Tax Department assigns an income tax officer to assess your tax filing. 

Should there be any discrepancy in the filing, you might receive a notice from the department under Sec 143 (2) on Income Tax Returns. 

And the officer may seek clarification, supporting documents and books of accounts for the purpose of scrutiny assessment. 

If there is a mismatch between the tax paid and the tax due, you must pay the additional amount or receive a refund, as may be applicable.

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Five NRI Tax Notices & How to Avoid Them

As an NRI, you need to be aware of the following five notices since prevention is better than cure.

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#1 Non Filing Of Income Tax Return (ITR)

Filing your income tax returns serves a range of purposes. 

To start with, 

• It assists you in dealing with large scale financial transactions, 
• It acts as a legal proof of NRI status, 
• It assists you in obtaining a loan in India 
• It helps you obtain tax refunds on excess tax deductions.

In case you indulge in a high value transaction and fail to submit ITR, the Indian Income Tax Department issues an ‘e-Campaign - Non-filing of ITR’ to your registered mail ID.

You can directly access these notices by logging into your income tax portal, navigating to pending actions, and clicking on the tab named ‘e-compliance cell’.

How to Avoid:

It is essential that you respond to these emails with supporting documents so that the Income Tax Department is aware of the legitimacy of your financial transactions. 

You can find assistance from our Tax-experts if you find the whole process tedious or need help filing your tax returns in India

To ensure you file taxes correctly and avoid such notices, refer to our NRI's Ultimate Guide to India Tax Filing

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#2 Error With Respect To TDS

You might receive a notice when there is a mismatch between the TDS that you show in your return and what is actually present in the TDS Reconciliation Analysis and Correction Enabling System (TRACES).

How to Avoid:

You can ask your employer or the person responsible for such TDS deduction to deposit the deducted funds with the government and duly file a TDS return.

It is necessary that you reconcile the actual TDS that gets deducted from your income with your Form 26AS (Tax Credit Statement).

It allows you to report to the TDS deductor if any differences are found in such filing.

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#3 Non-disclosure Of Other Income

If you fail to update your NRI status, the deducted TDS rate might differ as the person responsible for deducting such TDS might levy a lower TDS rate assuming a resident Indian.

As your inward and outward remittances increase, the tax department in India might start questioning and seek clarification regarding the same. And even ask you to file revised tax returns.

How to Avoid:

You can avoid receiving any such instances by logging in to income-tax e-portal and updating your NRI status.

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#4 Unnatural Or High Value Transaction

A high-value or significant-value transaction is detected when there is an unusual pattern in your bank account. 

The system adopted by the Income Tax Department of India detects any high value transaction when a deposit is made into your account.

And the deposit is way above your average monthly balance or the usual deposit pattern.

How to Avoid:

The easiest way to avoid notice regarding high-value transactions is to report it to the tax department.

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#5 Defect In Filing Income Tax Return

In case you have filed a wrong ITR form or fail to submit ITR returns accurately then the tax department may issue a notice under Sec 139 (9) requesting you to file a revised return.

You need to start by taking the help of a professional to ease your workload and result in filing the correct ITR.

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Conclusion

By now you might have understood why the department issues notices even after filing taxes before the due date. You need to keep in mind the above specified reasons and ways to avoid such notices in the first place.

Moreover, you can always seek the help of a tax expert to ensure that your returns thus filed are accurate.

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Income Tax Notices and how to avoid them: Frequently Asked Questions (FAQs)

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What is a notice of income tax to NRIs?

You might indulge in one or more financial transactions in a year as an NRI. 

If any such transaction is of a high value, it attracts the attention of the tax department in India.

If you fail to submit income tax returns or have filed the wrong returns, the Income Tax Department of India issues a notice seeking an explanation for the transaction.

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How to check if a notice has been received or not?

You can either use login to your registered mail-ID’s inbox to check if you’ve received any notice from the income tax department or 

You can log-in to the income tax e-portal, look for pending actions on your dashboard and click on e-compliance to see if you’ve received any such notices.

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What to do when an NRI receives a notice for an NRE account or FD?

Receiving income tax for any interest earned on your NRE FD is not uncommon. 

As the banks report your overall income for the year, including your NRE FD interest, given that there is no mechanism to differentiate NRE FD from other income, you might receive income tax notices.

You should add your NRE FD income as an exempt income during your income tax filing in India so that the tax department knows this particular income.

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Can I ignore an income tax notice?

No, ignoring an income tax notice might have consequences in the long run as the tax department is seeking an explanation regarding a particular transaction or the return filed.

Further, the Income Tax Department in India might even penalize you for ignoring tax notices for a longer period.

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How should I respond to an Income Tax Notice?

First, you are requested to read the tax notice carefully.

If you are able to interpret the notice properly, you can directly mail the Assessing Officer (AO) or the concerned person an explanation.

However, if you find it difficult to respond to the tax notice issued, you can always consult a tax professional who is aware of NRI taxation.

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