Dozens of senior executives earning over Rs 50 lakh annually have recently received income tax notices after the Income Tax Department flagged alleged discrepancies in their returns. Earlier, thousands of taxpayers were also placed under scrutiny for underreporting income and mismatches in filings.
So, why are income tax notices on the rise, and what are the most common red flags that trigger scrutiny?
Incorrect Income Tax Return Filing
One of the most common reasons for receiving an income tax notice is selecting the incorrect tax return form. For individuals, there are four applicable forms – ITR 1, ITR 2, ITR 3, and ITR 4.
“Many filers with first-time income from capital gains or Futures and Options (F&O) trading mistakenly use ITR 1 or ITR 4, instead of ITR 2 or ITR 3. This misfiling can lead to non-disclosure of such income, resulting in defective return notices for selecting the wrong form,” an tax expert says.
AIS Mismatches
Individuals generally receive tax notices when the income disclosed in their tax returns does not align with the information captured in the Annual Information Statement (AIS), including omissions such as capital gains, dividend income, interest earnings, or business-related benefits / perquisites.
Mismatch of Information
Scrutiny may also be attracted to overstated or incorrect deductions. “For instance, inconsistencies in HRA claims compared to the landlord’s reported income or fictitious donations to charitable institutions / political parties – as the department increasingly cross-verifies such claims through multiple reporting channels,” another tax expert says.
He adds that this issue is particularly common in cases involving House Rent Allowance (HRA) exemptions. Taxpayers often claim HRA benefits, but the corresponding rental income is either not reported under the landlord’s PAN or is reported inaccurately. “Such discrepancies are quickly flagged by the Income Tax Department’s systems, frequently resulting in notices being issued to taxpayers for clarification and reconciliation,” he says.
Source from: https://www.outlookmoney.com/tax/exemption-under-section-54-of-income-tax-act-1961-not-available-for-purchase-of-land
