How to Respond to a Demand Notice from Income Tax Department?

Filing your tax returns before the deadline is the best way to stay out of trouble, but does it guarantee safety for the long haul? You may still land in a problem if the details or total tax liability is mismatched. You may receive an 'outstanding tax demand' notice from the Income Tax Department under Section 156 of the I-T Act. The act addresses demands for interest, fine, penalty, or any other sum due to the department.

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Table Of Contents

What is a Demand Notice from the Income Tax Department

Steps to guide how to respond to a demand notice from the IT Department

Options for responding to a demand notice

Most Asked Questions

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After you file your return, the Income Tax Department officials scrutinise the tax declarations and look for any mismatches or discrepancies in the details. They issue an 'outstanding tax demand' if something is amiss. You need to understand the meaning of the notice and the steps to respond to it to avoid penalties and legal action. We have a comprehensive guide to help you address both concerns.

What is a Demand Notice from the Income Tax Department

After filing the Income Tax Returns, you may receive a notice from the IT department asking for details regarding mismatches. The authorities expect a proper response to this notice from taxpayers, seeking reasons and details regarding the contradictions in the assessments of your returns. The demand notice is issued for underreporting or not reporting a portion of your income under the following sections of the Income Tax Act, of 1961:

• Section 143(1)

• Section 143(2) for Scrutiny

• Section 148

Notice can be issued under Section 245 regarding off-setting of refunds against remaining payable tax. Another demand notice may be issued under Section 156 for demands relating to interest, fine, penalty, or any other sum.

Steps to guide how to respond to a demand notice from the Income tax Department

When you get a Demand Notice, your jurisdictional Income Tax Officer (ITO) uploads it online. You can access it by logging into your e-filing account on the official website http://www.incometaxindiaefiling.gov.in/. Here are the steps you should follow to respond to a demand notice:

Step 1: Log in to your account with your ID and password.

Step 2: Click on “E-file” followed by “Respond to Outstanding Tax Demand”. After this, you will get details such as section code, assessment year, demand notification number, date when demand is raised, outstanding amount, uploaded by, rectification rights, and response – submit and view.

Step 3: To respond to the Demand Notice, you must click on “Submit” for the relevant assessment year. You will see three options: demand is correct, partially correct, or disagree with demand.

Options for responding to a demand notice

You must check all three options in the response to the Demand Notice section and choose the relevant one. Here are the detailed steps for each option:

Option 1: Demand is correct

• On selecting this option, you will see a pop-up screen with the message: “If you confirm, demand is correct then you can’t disagree with the demand”

• You click on the “Submit” button

• A success message is displayed

• The outstanding amount and the interest are adjusted against the refund if due. If not, you must pay the demand right away.

Option 2: Demand is partially correct

• You see two fields to enter both the correct and incorrect amount

• After entering the amounts in both fields, you need to choose a reason for stating that the calculation is partially correct.

In this case, you will have to provide documentation as evidence to validate your reason. Here are the potential reasons:

Demand already been paid

You will have to give the Challan Identification Number (CIN) with details like the serial number of the challan, BSR code, date of payment, and amount. If CIN is unavailable, mention that you have paid the demand by challan but CIN is unavailable. Provide all the necessary details such as the date of payment, amount, and remarks.

Demand reduced by rectification/revision

Give the date of the rectification/revision order, details of the jurisdictional ITO who rectified it, and the demand amount. Also, upload the effect order passed by the ITO.

Demand reduced by appellate order but appeal effect yet to be given

Give the date of the appellate order, the reference number of the order, and details of the appellate authority

Appeal and stay petition filed, stay granted, or installment granted

Give the date of filing of the appeal, the name of the appellate authority, and details of the office where the stay petition is filed. In case a stay has been granted, upload a copy of the order.

Rectification/revised return filed at CPC

Provide filing type and e-E-filed acknowledgment number. Also, upload a challan copy, TDS certificate, indemnity bond, and a letter requesting a rectification copy.

Rectification filed with the assessing officer

Mention the application date and remarks

Option 3: Disagree with the demand

• After choosing this option, explain why you disagree with the department’s call

• Give reasons for disagreement from the available options

• Submit your response, following which you will see a success screen with a transaction ID

• Revisit the response by clicking on “View” under the “Response” tab

• Check the transaction ID, serial number, date of response, and response type

A Demand Notice from the IT department is a reason to worry, but addressing it correctly can help you prevent hassles in the long run. You need to be honest, have the essential documents at hand, and ensure providing them at the time of response to the Demand Notice. You can see expert guidance to be extra sure.

FAQ

Q1. What is a demand notice from the IT Department?

When you receive a demand notice from the IT Department, it indicates a discrepancy or mismatch in the income declared and the tax paid. In most cases, it specifies the additional amount of tax you owe to the department.

Q2. How do I verify the authenticity of the Demand Notice?

Ensuring that the Demand Notice is authentic is easy. You can check the taxpayer details, official logos, and the income tax department seal to ensure it is valid. Remember to cross-check the details of the notice by accessing the official income tax portal.

Q3. How soon should you respond to a Demand Notice?

The Demand Notice specifies a time frame for response. You should adhere to this deadline to avoid penalties or further legal actions. You have an option to seek an extension if you need more time to respond to the notice.

Q4. What if I miss the deadline for a response to a Demand Notice?

You should ensure sticking with the deadline because missing it can lead to hefty penalties and legal consequences. However, you can reach out to the income tax department and explain the situation if you have a genuine reason to delay your response.

Q5. Is it possible to dispute a Demand Notice?

Yes, you can dispute a Demand Notice if you have valid reasons. The process entails filing an appeal with the Commissioner of Income Tax (Appeals). You also need to give reasons and necessary documents to support your case.

Q6. What are the documents needed to respond to a Demand Notice?

You need essential documents to respond to a Demand Notice. These include income statements, tax payment receipts, and investment proof. These documents should validate the income and deductions you have claimed.

Q7. Should I seek professional guidance to respond to a Demand Notice?

Yes, consulting a tax professional makes sense when it comes to responding to a Demand Notice. A seasoned expert can resolve a complex matter by offering advice on the appropriate response and helping you navigate the legal aspects of the notice.

Q8. Can I make a partial payment instead of paying the entire demanded amount together?

Yes, you can negotiate a partial payment with the IT department. However, it requires prompt and transparent communication of your financial constraints.

Q9. How can I address errors in my return to avoid future demands?

The best way to avoid a Demand Notice is by regularly reviewing your income tax return before filing. Rectify the errors promptly if you find them. Seeking expert guidance can prevent errors in the first place.

Q10. What steps can I take to avoid a Demand Notice in the future?

A few measures to protect yourself from a Demand Notice in the future include keeping meticulous records of your financial transactions, filing your returns accurately and on time, and staying informed about changes in tax laws. You can keep track of updates or notices on the official income tax portal.