Why the taxman may send you a demand notice?

This post is written by Krishna Srinivasan, who is a personal finance blogger writes for Plan Your Investment. 

Have you ever received notice from income tax office?. If you have filed income tax returns with all the details about your income, deductions, etc. and these details are verified by income tax department on random basis. Income Tax department has all the transactions pertaining to your PAN card. Once you have filed income tax returns, they can verify if the details submitted are correct as per your PAN records. If the details are not matching and any discrepancy found, they will send you a notice with details about the discrepancy. There is no need to panic for getting the notice, it is normal for income tax officer to send notice for the clarifications. This article explores when income tax department would send you a notice.

Even if the notice is seeking the payment, there is no reason to panic. Find out why IT Department asking for the payment and under what section they have sent the notice. Because, the notice can be sent for many reasons and if the demand for the payment is not correct as per your data, you can appeal against the notice.

Section 143(1) – Letter of Intimation

The intimation under section 143(1) is sent by the IT Department in response for the tax return filed by the tax payer. The main reason for this notice is intimating the tax payer about the arithmetic mistake while filing the return or  claiming excessive deduction or wrong exemption found while processing the return. By receiving the notice u/s 143(1), one can not conclude that it is a demand notice. As the name suggests, it is a intimation notice to the tax payer about the refund from IT Department or tax payable. This intimation has to be sent before completion of   the assessment year.

If this intimation contains any liability of the tax payment, then assessee  may consider this as the demand notice and make the payment. It is clearly notified by the IT department that this intimation is acknowledgement for the return filing and if there is any calculation error while computing the tax. However, if it provide any pending payment,  assessee has to clear the payment or file the application u/s 154 for the rectification. Do not worry and never try to ignore this notice. It may lead to a fine.

If the net “NET AMOUNT REFUNDABLE” is less than Rs. 100 or “NET AMOUNT DEMAND” is less than Rs. 100, then assessee can ingnore this notice and he thereupon won’t receive the refund or no need to pay the pending due.

Section 143(3) & 147

Notice u/s 143(3) is issued only after the notice from the section 143(2). This section is popular for the income tax scrutiny for an assesse’s income. However, this notice is not sent to assesse immediately after filing the returns. If the evidence provided by an assesse u/s 143(2), then IT Department sends a notice seeking the further scrutiny.

If Assessing Officer (AO) finds any income is escaping from the returns, then they would send a notice u/s 147.

Section 206C – Tax Collected at Source (TCS)

We are aware of the Tax Deducted at Source (TDS) from our salaries and interest income. In the same way, for the certain goods seller has to collect the tax at the time of receiving the money. This is known as Tax Collected at Source (TCS). The specified list of goods are:

  1. Alcoholic Liquor for human consumption (1%)
  2. Tendu Leaves (5%)
  3. Timber obtained under a forest lease (2.5%)
  4. Timber obtained under any other mode (2.5%)
  5. Any other forest products other than Timber. TCS is applicable for the forest products, not the agriculture products. (2.5%)

Note that, TCS also includes many other categories, but I have listed above is only related to the section 201C. TCS has to be collected at the time money received from the buyer in the form of cash or cheque or draft. The TCS rate is ranging from 1% to 5% for various product categories.

Collected tax has to be deposited within one week from the last date of the collection month. The seller has to file a return for every quarter for the income he earned from these transactions. If the seller is failed to pay the collected tax on time, he shall be liable to pay the interest at 15% per annul from the date he collected money and till when he has paid the tax. He would receive a notice from the income tax office under the section 201C for demanding the payment of TCS.

Other Sections

There are few other sections for sending the notice.

  • Section 153A/153 – Related to search and seizure operations
  • Section 201(1) 201(1A) – Failure to deduct tax or deposit deducted tax
  • Section 210(3) – Tax officer believes that advance tax is payable.

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