In an advertisement published last week, the I-T department have alerted all those tax non-filers who have not filed their previous year returns. They have been asked to explain, e-file and pay the dues, if any. And the last date to reply is 31st March. A penalty of Rs 5,000 may be applicable to returns filed post the deadline.
While the replying to these notices is as easy as log-in on to the e-filing website and choosing an explanation from a drop-down menu, the complicated part is deciding which option applies to you.
"The non-compliance emails have been sent to taxpayers based on the information received from third parties such as banks, TDS returns and post offices," says Archit Gupta, Founder and CEO, ClearTax.in. The department is seeking further information on such particular transactions—incomes or investments that were not declared in the mentioned years' returns.
However, some of you must have received a notice even if you had filed a return. There is no need to panic. In that case, all you need to do is fish-out the acknowledgement number of your ITR for the year. Along with that you'll have to provide the date and mode of filing (paper or e-filing) as proof of your filing. However, after e-filing your return must also be verified. "If you did not verify your tax return or it was not verified timely; your return may have been considered 'invalid' or 'not submitted'. You may have to submit your return again," says Gupta.
The process gets a little stretched out if you did not file at all. You will have to select an appropriate response for non-filing. Your answer would depend on the source of your income/investment, taxability of it and other tax filed for the year.
High-value transactions are especially under the scanner. Also, a lot of taxpayers who invested in stock but had a total income below the taxable limit of Rs 2.5 lakh have received these notices. In some of these cases the taxpayer did not file as they incurred a loss on these share trading. "If their total income was below the taxable limit, they can select the option 'Income from transaction is below taxable limit' and in the comments section explain that there was a loss from the transaction and the ITR was not filed as the total income was taxable limit," says Gupta.
All taxpayers who have got these notices will have to recalculate their tax dues for the mentioned financial year and outstanding balances, if any, must be paid before replying to the notice. "While responding to the notices, the taxpayer will then have to mention under remarks that although return has not been filed but tax has now been duly deposited by them," says Gupta. The remarks section has a limit of 250 words where you must mention that you are willing to re-file if the AO desires so.
In your calculations say there are no dues, you will need proper paper work to back your claims. Bank statements, TDS certificates, share trading statements, calculations of investments matched with inflows, safely in records must be saved in case there is any further inquiry from the tax departments.
What's your Explanation?
Choose an appropriate explanation after identifying the transaction mentioned in your notice.
1.Self-Investment/ expenditure are out of exempt income: Select this option if the investment or expense is made out of exempt income. For example, proceeds of a long-term capital gain or insurance policy further invested.
Action needed: Calculate if there is any tax liability and pay up, if there are. Also, keep all the documents related to the transaction ready for review by the department.
2. Self-Investment/ expenditure are out of accumulated savings: This option is for queries related to accumulated savings such as bank accounts and deposits, proceeds from investments such as mutual funds, stocks, PF, etc.
Action needed: Re-calculate your tax liability on these savings. Rectify in case there was a mistake. Give details in remarks explaining in case there are no dues.
3. Self-Investment/ expenditure are out of gifts/ loans from others: If the transaction in question is made from money received as gift or loans from someone, this is the option to select.
Action Needed: Be extremely careful about the income-clubbing rules and tax-treatment of gifts and loans while calculating your liability. The regulations differ on the basis of your relationship with the source of gift/ loan, amount received and the occasion for receiving such a gift. Consult a professional if need be.
4.Self-Investment/ expenditure are out of foreign income: Opt for this if the investment in question was made from income earned from a source outside India.
Action needed: Have proofs of residential status, proof on income earned, and transaction proof (bank statement showing inflow and outflow of funds) asset/ investment-related and documents and the Tax Residency Certificate (TRC) for claiming relief under the Double Taxation Avoidance Agreements (DTAA).
5.Self-Income from transaction is exempt: Select this option if the income mentioned is an exempted under the I-T Act such as proceeds from insurance policy, long-term capital gains, PPF maturity money, etc.
Action Needed: Explain that this was exempted income and therefore no tax liability. Keep proofs of this being an exempt income handy.
6. Self-Income from transaction is below taxable limit: This is the option to select if the income in question is below taxable limit of Rs 2.5 lakh.
Action needed: Re-do the calculations to be doubly sure that you don't owe the department any money. Also, keep proofs of all your incomes for the year ready for review.
7. Self-Income from transaction relate to different AY: Select this option income in question was taxable in a different financial year. Action needed: Mention the correct year for taxation in the remarks and keep proof of taxes paid on it (ITR filings) for that year ready.
8.Self-Not Known: This is the option for any other type of income or investment that does not fall in any of the categories mentioned above.
Action needed: Since these will mostly be rare or unusual cases make sure you give a solid explanation in the remarks section.
9.Other PAN: Select this option if a wrong PAN number has been quoted.
Action needed: provide your correct PAN number in remarks.
10. Not Known: Selected this option if you are clueless about which transaction the department is talking about.
Action needed: Wait till the department gets back to you with details.
11.I need more information: Select this option if you know what the transaction is, however, not clear or need more information to submit a response.
Action needed: Wait for the department to respond with more information.