Income Tax Notice: The new fiscal year, 2023–24, has been underway for more than a month, and tax season has officially started. The Income Tax Department is reviewing prior years' returns and notifying people who are suspected of tax evasion while taxpayers are busy filing their reports. It's crucial to comprehend why people are getting these notices in order to prevent obtaining one.
The Income Tax Department's basic principle is to catch tax evasion, which means that while a person can hide their income, they cannot hide their expenses or investments. To monitor taxpayers' expenditure and investments, the department has implemented a system called Statement of Financial Transaction (SFT). Different limits have been set for different types of transactions, and if a transaction exceeds the limit, the concerned unit informs the Income Tax Department.
The department also receives information about financial transactions through PAN, mobile number, and Aadhaar, which are used in almost every major transaction. For instance, PAN is required for buying or selling a vehicle other than a two-wheeler, opening a bank account or demat account, applying for a credit card, or making a deposit, insurance premium, mutual fund, or bond purchase exceeding Rs 50,000. If a tenant receives rent from the property, they must provide PAN. TDS (Tax Deducted at Source) is also a way to monitor taxpayers' income. TDS is deducted if interest exceeds Rs 40,000 in a year on bank or post office deposits or in other cases, including purchasing property.
The Income Tax Department receives information on the following cases:
1. If a person deposits or withdraws Rs 10 lakh or more in a cash savings account in any one financial year, then the bank informs the department about it. Information is also provided when making a demand draft (DD), pay order, or banker's check of Rs 10 lakh or more using cash.
2. If a person deposits or withdraws cash of Rs 50 lakh or more in the current account, information is given to the Income Tax Department.
3. Information on FDs of Rs 10 lakh or more in a financial year is also given to the department, applicable in both cash and digital cases.
4.If a person pays a credit card bill of Rs 1 lakh or more in cash or a bill of Rs 10 lakh or more using any means, the department is notified.
5. The property registrar notifies the department whenever someone purchases or sells property for Rs 30 lakh or more. On real estate acquisitions over Rs 50 lakh, TDS is deducted at 1%, and the department is informed of the transaction.
6. The business or organisation in charge of the sale must notify the Income Tax Department whenever a person purchases shares, debentures, bonds, or mutual funds worth Rs 10 lakh or more in a fiscal year.
7. The seller is required to tell the Income Tax Department of any cash payments made for purchases of goods or services totaling more than Rs 2 lakh. For instance, the shopkeeper is required to notify the department if a customer purchases jewellery and pays more than Rs 2 lakh in cash. A PAN card is additionally necessary for any transaction over Rs 2 lakh.
Taxpayers must account for their costs and investments against their income to avoid obtaining a letter from the Income Tax Department. The department may issue a notice in the event that income and expenses disagree. Taxpayers can review the specifics of all expenditures and investments made by downloading their Annual Information Statement (AIS) from the Income Tax Department's website.
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