Filing income tax returns (ITR) is a fundamental obligation for anyone earning an income in India. However, the process can be intricate, and mistakes can happen. If there are errors or omissions in your return, the Income Tax department may issue a notice, which can be quite alarming. The department has the authority to reassess old ITRs if it believes that some income has escaped assessment. This reassessment could lead to a tax notice under Section 148 of the Income Tax Act. With the deadline for such reassessments approaching, it’s crucial for taxpayers to be aware of the timeline and potential risks involved.
Key Deadlines and Changes
Taxpayers might receive a notice under Section 148 if their income has escaped assessment by August 31, 2024. This is particularly important if the escaped income is Rs 50 lakh or more for the assessment year (AY) 2018-19 or later. After this date, any reassessment for AY 2018-19 will be time-barred.
“From September 1, 2024, any notice under Section 148 issued after a notice under Section 148A will be restricted to a period of five years and three months from the end of the relevant assessment year, provided the income exceeds Rs 50 lakh. This deadline means that after August 31, 2024, the Income Tax department cannot issue reassessment notices for AY 2018-19,” explained Kunal Savani, Partner at Cyril Amarchand Mangaldas.
Who Can Receive a Notice Under Section 148?
According to Ritika Nayyar, Partner at Singhania & Co, anyone who has filed an ITR could theoretically receive a notice under Section 148.
“This notice is issued if the Income Tax department believes that your income has been understated or omitted from your tax return, leading to less tax being paid than what is actually due,” she added.
The reassessment provisions were amended in July 2024, reducing the time limit for reassessment from 10 years to 5 years. For cases where the escaped income exceeds Rs 50 lakh, reassessment can only be initiated within five years. For other cases, the time limit is three years. This amendment provides some relief, particularly for smaller taxpayers, by shortening the period during which the department can reassess old returns.
How to Avoid Receiving a Section 148 Notice
While there is no guaranteed way to avoid receiving a Section 148 notice, certain practices can significantly reduce the risk:
- File Accurate and Complete Returns: Ensure that you accurately report all sources of income and maintain detailed records to support your tax return.
- Understand Tax Laws: Familiarize yourself with tax laws to avoid unintentional errors and omissions.
- File On Time: Timely filing of returns helps avoid penalties and reduces the likelihood of scrutiny.
- Claim Reasonable Deductions: Ensure that all deductions and expenses claimed are supported by proper documentation. Avoid excessive claims that might draw attention.
- Limit Cash Transactions: Minimize cash transactions and keep detailed records for any unavoidable cash dealings.
- Seek Professional Advice: For complex tax matters, consulting a tax professional can ensure compliance and accuracy.
- Maintain Transparency: Keep digital records and regularly review your tax returns to minimize risks.
“To avoid a notice, taxpayers should file accurate annual returns, declaring income from all sources. If served with a show cause notice under Section 148A, the assessee should fully engage with the opportunity to be heard. If a Section 148 notice is still issued, the assessee must respond within the stipulated time by either submitting a written reply with supporting documents, filing a return, and notifying the assessing officer, or challenging the notice,” advised Savani.
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What to Do If You Receive a Section 148 Notice
Receiving a Section 148 notice can be daunting, but it’s crucial to respond promptly and effectively.
“Understand the notice by reading it carefully and verifying all details. Check its validity, including adherence to time limits and monetary thresholds. Gather necessary documents like bank statements, invoices, and receipts, and organize them systematically. Seek professional advice if the matter is complex,” Nayyar suggested.
She further emphasized that timely response to the notice within the stipulated timeframe is essential. Clearly explain your position and provide supporting documents. Keep copies of all correspondence and documents related to the notice.
Taking early and proactive action is vital in managing a Section 148 notice. By following these steps and seeking professional help when necessary, you can improve your chances of achieving a favorable outcome and effectively addressing any issues related to your tax assessment.
