Income tax scrutiny notice is issued by the Income Tax Department after the income tax return is filed by you. The department may ask you to initiate scrutiny for your case. This may be a result of either a random check or a deliberate attempt. This notice may be issued under a particular section or clause and clearly defines the reason for scrutiny. The idea is to provide the assesse an opportunity to substantiate his income declared and the expenses, losses, deductions and exemptions announced in a financial year.
The process of scrutiny
The process of scrutiny starts with the notice from the income tax department. After this, the assessing officer may conduct inquiries as deemed necessary from the assesse. The idea is to monitor the income declared and other deductions as mentioned by the employee during income tax return process.
Reasons for Income Tax Scrutiny Notice
There are several reasons why an income tax scrutiny may be initiated in your case. Some of the important reasons are described below:
Failure to file a Return:
One important reason why a scrutiny is initiated is because you may have failed to file an ITR for current financial year or for multiple years. Sometimes, your calculations may not match with that of the IT department or you may have inadvertently missed declaring an income in a particular financial year.
Sudden rise or fall in income
This is a self-explanatory case where your tax return amount has increased or decreased drastically in a very less time. This may force the IT department to check the details of your income and IT return filed by you. For instance, if your income tax return has jumped significantly from Rs 5 lakh in one year to Rs 50 lakh in the next year, it may ring an alarm in the minds of IT officers who may then issue a notice of scrutiny for you.
High value transactions in a financial year
In case you have done a very high value transaction in a year, which is different from your normal spending habit, you may get a scrutiny notice. For instance, if you have purchased a house or a piece of land or have received a huge amount in your account from someone which is not a part of your normal income, your case may classify for a scrutiny. Also, huge credit card expenses, which may affect your cash inflow and outflow may be another reason for scrutiny.
Mismatch in TDS Credit
In case there is a mismatch in your TDS credit as claimed by you with respect to the details of the income tax department, your individual case may fall under the scrutiny of IT department.
Declaring lesser income or more loss as compared to previous fiscal year
In case you have declared significantly lesser income or more loss as compared to your previous year’s declaration, you may come under the scrutiny. For a normal salaried person, such a situation is unlikely to happen and hence IT department may want to question you. These things often happen in case of huge business where salary or losses are highly volatile. Even in those cases, chances of receiving scrutiny notice is quite high.
Non-declaration of exempted income
Some people mistakenly think not to disclose exempted income during IT return. Income from long term capital gain, interest income from saving bank account or FDs up to Rs 10,000 or any gifts received from others all come under exempted category. But still these things should be clearly announced while filing IT return so as to save yourself from future trouble.