When differences arise in tax dues

Instances when your tax calculations may not match with that of the department

So, you somehow filed your income tax return and e-verified it at the last moment even though the income tax department implored you to file it in advance. That you think would be the end to your tax worries for the year. Well, not really.

Once you file the return, it will be processed by the department’s central processing centre (CPC). Data furnished in your return is compared with the data available with the department on your various sources of income such as Form 16, Form 16A, Form 26AS, etc After this, an intimation under Section 143(1) is sent out to you, juxtaposing the income and tax calculations made by the department alongside your calculations.

In case there is a difference in the tax you have paid as against what the department has calculated, a tax demand is raised in this intimation. Here are a few instanceswhen your tax calculations may not match with that of the tax department, leading to the tax demand.

Exemption not claimed with employer

An example could be the HRA tax exemption. In case you want to claim this exemption, , you must submit proof of living in a rented property to your employer. Your employer will then calculate your tax liability after considering this exemption, and deduct TDS on your salary accordingly. Tax experts say that if you claim the HRA exemption only while filing the tax return, without routing it through your employer first, you can get a tax demand in the Sec 143(1) intimation. .

Interest on deposits

If your bank has deducted income tax on interest payments, and you haven’t shown this interest as income in your tax return, there is every likelihood that your income will be adjusted upwards in the 143(1) intimations, with a tax demand. This is because the TDS on interest is reflected in your Form 26AS.

Income from previous employer

 

This is one of the common mistakes salaried individuals make. While switching jobs during a financial year, always remember to collect your Form 16 from all your employers. And when you do, never forget to report salary earned from all the employers during a financial year, and pay tax, if any.

Income reported under wrong head

This can happen with assessees who take up freelance assignments, for instance. Depending on the nature of the service provided, the tax deducted at source could either be at 2 per cent or 10 per cent (Section 194C or 194J respectively). If this income is reported under the head ‘income from other sources’ rather than as business income, there could be a demand under 143(1) because it tries to match the TDS only with the income head ‘profits and gains from business or profession’, say tax experts. Thus, although you might have paid the correct tax amount at the correct slab rate based on your duly reported income, a wrong head of income also can lead to a discrepancy being pointed out under Section 143(1).

Cash vs accrual accounting

Before the financial year ends, companies and firms that are responsible for deducting tax on payments to their advisors or consultants usually make a provision for the amount due for March.

They also make a provision for tax deducted at source for the same payment. In case the consultant or advisor maintains books of accounts on cash basis, the income will only be recorded in the subsequent financial year when they receive it in April. This mismatch can result in addition of income in the 143(1) intimation.

Clerical errors

Mistakes can also arise when you are paying advance tax or self-assessment tax — you may, for instance, put in the wrong PAN or tax amount in the challan, if you are making the payment manually. Banks may also sometimes incorrectly furnish details of this tax you deposited to the department.

Once you receive the 143(1) notice, check for any tax demand by the department. If you agree that you have made a mistake and that the department’s calculations are right, you must pay the additional tax demand within 30 days from the receipt of the intimation. If you disagree, you can file a rectification request under Section 156 of the Income Tax Act.

This can be done through the e-filing portal of the tax department directly or with the help of e-filing intermediaries who offer year-round services.

Remember to discuss this with your tax consultant though, if you’re not well-versed with this procedure.

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