Many instances are anticipated to involve deductions claimed after submitting investment disclosures to employers after the deadline. According to chartered accountants, salaried taxpayers who claim appropriate deductions on their tax filings need not be alarmed.
Several high-net-worth individuals (HNIs) and salaried taxpayers, among others, are agitated after receiving income-tax (I-T) letters lately.
The tax authorities have handed out 22,000 warnings requesting explanations for anomalies between Form-16, Form 26AS, the Annual Information Statement (AIS), and their returns submitted for the fiscal year 2022-23.
How to Respond to Notifications
In many instances, the letters would have been delivered using the tax department’s artificial intelligence-based (AI) systems. “Some are blatantly incorrect. In certain circumstances, deductions are valid, yet taxpayers have received notifications claiming anomalies. If you fall into this group, submit your answer using the e-filing site. “Explain your position and clarify that the discrepancies mentioned in the notices are factually incorrect and that the ITR details are correct,” Mohanka adds. Section 80C and 80G deductions are highlighted.
Salaried taxpayers often need to provide documentation of investments made to claim deductions under Section 80C to their employers before the deadline. Consequently, their employers deduct too much tax, but workers may seek a refund when they file their income tax returns (ITR). Form-16 is sure to vary from actual returns since deductions are not reflected. The I-T department’s scrutinizing tools may identify this as a discrepancy.
“The issue at hand revolves around discrepancies in deductions claimed, such as those related to Sections 80C, 80D, and 80U, compared to what is reported on their Form 16.” These warnings apply to tax returns for fiscal years 2022-23 (assessment years 2023-24). In effect, taxpayers are being asked whether they claimed more deductions under Chapter VI-A than their employers declared on Forms-16,” explains Vertika Kedia, Co-founder of Tax2Win, a tax consultation platform.
Similarly, if the I-T department believes you have claimed Section 80G deductions on contributions that seem dubious, you would have received warnings to provide evidence. “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.
Foreign asset declaration discrepancies
If you have foreign bank accounts, stocks, or real estate in another country, you must report the assets on Schedule FA (foreign assets) while submitting your taxes. The catch is that you must reveal assets owned over the preceding calendar year. For 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 incur a 5% TCS. You may 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 must not be optional in the FY 2022-23 reports. Instead, they must be recorded in the FY 2023-24 reports, 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,” adds Mohanka. Previously, tax authorities gave incorrect warnings to those claiming deductions under Section 80P.
If you feel the notification is unjustified, the key is to stay calm and compose a response that justifies the deductions claimed. “Go to the official IT portal.” Look for the particular notification you got, which should be there. “You should be able to respond to the notice or submit your explanations along with any supporting documents,” adds Kedia.
Contact your chartered accountant for an appropriate solution if you have any concerns. “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 often keeps to its position despite offering appropriately crafted explanations and supplying the requisite data to explain deductions and other claims. In such circumstances, the only alternative is to file an appeal, which will undoubtedly take time.
“We welcome automation and standardization in the auditing of tax returns.” In certain circumstances, however, more inspection and human intervention are necessary. “AI must become more intelligent, and machine learning tools must learn to produce better results and cause fewer headaches for honest taxpayers,” he argues.
Fraudulent claims must face the consequences.
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 might end up in hot water if you try to save money quickly.
If you make a mistake, you may have to pay fines. “Taxpayers must revise their ITRs and pay the tax on additional income reported on the ITR.” In the future, the tax department may impose a penalty if it finds any errors or discrepancies in the documentation these taxpayers have submitted. According to Kedia, the penalty may be up to 200 percent of the tax the offender should have paid based on their actual income.
Credit:- Money Control