Individuals
have the freedom to self assess income and pay taxes. That doesn’t mean that if
you do not declare a particular stream of income to evade taxes, you will go
scot free!
Tax
evasion is an illegal activity which entails not filing income tax returns
altogether or misrepresenting the tax payable amount. It is different from tax
avoidance, which is a legal activity because tax laws are used to reduce the
tax amount payable.
tax returns are scrutinized only if income
tax authorities feel that there is tax evasion. If they conclude that you have
deliberately concealed income to reduce tax liability, you will be penalized.
What
does scrutiny of income mean?
Scrutiny
essentially means evaluating the income tax return for its authenticity i.e.
the income tax assessing officer will go through the returns filed and various
other documents such as bank statement, Form 16 among other things to check if
there is any mismatch in tax liability assessed by the individual and the
actual tax liability. The income tax officer will request all bank account
statements, credit card statements, details of all family members, Form 16 and
other relevant documents as part of the scrutiny process.
In
most cases, if a return is picked up for scrutiny, a scrutiny notice will be
served within a period of one year from the month in which returns have been
filed. So if you file your returns on 30th July, 2012, then you may
get a scrutiny notice anytime on or before 29th July, 2013. The
notice is in a standard format and it will contain relevant details of the tax payer
and also will contain a date on which the tax payer needs to appear before the
concerned income tax officer.
The
tax payer need not attend this meeting in person. He can send across a
representative to plead his case, which in most cases will be the chartered
accountant of the tax payer.
How
is an income tax return picked up for scrutiny?
There
are various guidelines/thresholds in place which will determine the selection
of income tax return for scrutiny. Some of them include
§
All assessments pertaining to search
and seizure cases
§
All returns where deduction claimed
under chapter VI-A of the Income tax act is Rs. 25 lakhs or above
§
All returns where refund claimed is
Rs. 5 lakh and above
§
Withdrawal of less than Rs. 50,000
p.a. will be picked up for scrutiny. The logic being that you may have access
to black money which you may be using for your daily expenses and hence
withdrawals from the bank account are minuscule.
§
In addition, cases will be picked
through a Computer Assisted Scrutiny System (CASS) by giving specific
instructions.
What
are the implications?
If
the income tax officer figures that you have concealed income, a penalty will
be levied which can be anywhere up to 3 times the amount of income concealed.
So if the tax evaded amount is Rs. 10,000, you can be charged a penalty of
anywhere between Rs. 10,000 to Rs. 30,000.
What
should you do to avoid such a situation?
Many
salaried individuals believe that since Tax is deducted at source for salary
and for other streams of income, when it crosses a particular threshold, their
tax liability is nil. That may not necessarily be the case.
There
are several other streams of income, where tax may not be deducted at source.
For e.g. Post office saving deposit interest, interest on bank savings account,
rent received from property among other things. Also if you have switched jobs,
it is likely that if you haven’t declared that your old organization has taken
into consideration deductions under Section 80 while calculating TDS, the
amount of TDS charged by the new organization may be lower as they would
consider the full quantum deductible under Section 80, resulting in you paying
lower tax.
Therefore
while filing returns make sure you consider all these factors. It is better to
take precautions while filing returns because if your return is picked up for
scrutiny because of some anomaly, apart from the financial impact, you will
witness a lot of mental stress.
No comments:
Post a Comment