Many cases are anticipated to involve deductions claimed after submitting investment disclosures to employers after the deadline. Salaried taxpayers who claimed appropriate deductions on their tax filings should not be alarmed, according to chartered accountants. – I-T Department
Several high-net-worth people (HNIs) and salaried tax-payers, among others, are agitated after receiving income-tax (I-T) notices recently.
The tax authorities are said to have handed out 22,000 warnings requesting explanations for anomalies between Form-16, Form 26AS, Annual Information Statement (AIS), and their returns filed for the fiscal year 2022-23.
Deductions under section 80C, 80G in focus
Salaried taxpayers frequently fail to submit proof of investments made to claim deductions under section 80C to their employers before the deadline. As a result, their employers deduct too much tax, but employees can seek a refund when they file their income tax returns (ITR). Form-16 is bound to differ from actual returns because deductions are not reflected. The I-T department ‘s scrutinizing tools may flag this as a discrepancy.
“The issue at hand revolves around discrepancies in deductions claimed, such as those related to Sections 80C, 80D, and 80U, in comparison to what is reported on their Form 16.” These notices apply to tax returns for fiscal years 2022-23 (assessment years 2023-24). In essence, taxpayers are being asked if they claimed more deductions under Chapter VI-A than their employers declared on Forms-16,” says Vertika Kedia, Co-founder of Tax2Win, a tax consultation platform.
Similarly, if the I-T department believes you have claimed Section 80G deductions on donations that appear dubious, you would have received warnings to provide proof. “Those who claimed exemptions/deductions on HRA and housing loan interest deductions but did not mention it in their Forms-16 have also received notices,” Kedia says.
Discrepancies in foreign asset declaration
If you have foreign bank accounts, stocks, or real estate in another country, you must report the assets in Schedule FA (foreign assets) while submitting your returns. The catch is that you must reveal assets owned over the preceding calendar year. That instance, if you file income tax returns for the fiscal year 2022-23, you must include information on foreign assets owned between January and December 2022.
“We have received notices for non-disclosure of foreign investments made after December 2022 (that is, in calendar year 2023) from several individuals.” “The notices were issued after they claimed a refund of tax collected at source (TCS) on these investments,” said TaxAaram.com founder Mayank Mohanka. Until September 30, 2023, investments in foreign assets worth more than Rs 7 lakh would attract a 5% TCS. You can get a refund for this amount when you file your taxes.
“At the time of filing returns, such taxpayers claimed a refund of tax collected at source (TCS) on investments made between January and March 2023.” These investments are not required to be disclosed in the FY 2022-23 reports. Instead, they must be recorded in the FY 2023-24 returns, according to the requirements of the income tax department. “This is an error on the department’s part, and it will have to be appealed,” explains Mohanka. Previously, tax authorities sent out incorrect warnings to taxpayers claiming deductions under section 80P.
How to respond to notices
In many cases, the notices would have been delivered using the tax department’s artificial intelligence-based (AI) systems. “Some are blatantly incorrect. In certain circumstances, deductions are totally valid, but taxpayers have received notifications claiming anomalies. If you fall under this category, make sure to send your response via the e-filing portal. “Explain your position and make it clear that the discrepancies mentioned in the notices are factually incorrect and that the ITR details are correct,” Mohanka says.
If you believe the notification is unjustified, the key is to remain calm and compose a response that justifies the deductions claimed. “Go to the official IT portal.” Look for the specific notice you received, which should be there. “You should be able to respond to the notice or submit your explanations along with any supporting documents,” adds Kedia.
If you have any doubts, contact your chartered accountant to get an appropriate response. “If your notice is related to a refund claim and has been flagged by the I-T department ‘s risk management process,” Kedia explains, “you can select the option that states, ‘The claim of refund is correct to the best of my knowledge and belief.”
Mohanka argues that the I-T department frequently keeps to its position despite offering carefully crafted explanations and submitting the requisite data to explain deductions and other claims. In such circumstances, the only option is to file an appeal, which will undoubtedly take time.
“We welcome automation and standardization in the auditing of tax returns.” In some circumstances, however, additional scrutiny and manual intervention are required. “AI must become more intelligent, and machine learning tools must learn in order to produce better results and cause fewer headaches for honest taxpayers,” he argues.
Fraudulent claims are bound to face the music
Finally, resist the temptation to claim deductions for which you are ineligible because you believe you will not be scrutinized. The tax agency is using AI and machine learning methods to detect disparities, and you could end up in hot water if you try to save money quickly.
If you make a mistake, you may have to pay penalties. “Taxpayers must revise their ITRs and pay the tax on additional income reported on the ITR.” If the tax department discovers any issues or discrepancies in the documentation submitted by these taxpayers in the future, they have the authority to levy a penalty. According to Kedia, the penalty may be up to 200 percent of the amount of tax the offender should have paid based on their real income.
