Income Tax Return Filing is one of the most important aspects of personal finance management. If your gross total income (before allowing any deductions under section 80C to 80U) exceeds the basic exemption limits as prescribed by the Income Tax Department, you have to mandatorily file your Income Tax Return for that Financial Year (or Assessment Year).
Non-filing of ITR may attract penalties and also has severe consequences.
What if you have genuine reason(s) for not filing your income taxes? You might have quit your job and started your own business and assuming there is no taxable income in the first year , and you do not file taxes. How IT department considers these kind of non-filing cases?
Let me explain to you my own real-life experience. I was employed in the Information Technology (IT) industry till 2009-10 and filed my Income Tax Returns every year. In 2010 I had quit my job to pursue CFP (Certified Financial Planner) course full-time and also to start my own consultancy firm ReLakhs Financial Services.
In the Financial Year 2010-11 (AY 2011-12), I did not file my Income Tax Return as my gross total income was below the applicable basic exemption limit. But, during that FY, I had booked few Time Deposits (FDs) out of my previous year’s savings and also there were some TDS entries in my Form 26AS towards ‘Interest on Securities’.
As I did not file my Tax Return, I had received ‘non-filing of Income Tax Return Notice’ from the IT department. This is a compliance notice asking me to furnish information/reasons for not filing my ITR. They had also enclosed annexure with the information on my time-deposits (FDs).
Like-wise, there can be genuine reasons for not filing your taxes but you may end-up receiving compliance notice from the Department.
In this post let’s discuss – What is non-filing of income tax return notice? How to respond to non-filing of income tax return notice? How to handle notice from the Income Tax Department for non-filing of ITR? How to check the status of your response online?
Non-Filing Monitoring System
The Non-filers Monitoring System (NMS) is a pilot project which has been initiated by the Tax Department to prioritize action on non-filers with potential tax liabilities.
The IT dept carries out ‘data analysis’ to identify non-filers about whom specific information is available through various sources such as;
- Annual Information Return (AIR) (High Value Financial Transactions information report. Read : How Tax dept tracks High Value Financial Transactions?)
- Centralized Information Branch (CIB)
- TDS/TCS Statements etc. (Read: What is Form 26AS?)
Through NMS around 12.19 lakh, 22.09 lakh and 44.07 Lakh non-filers with potential tax liabilities have been identified in 2013, 2014 & 2015 respectively..
The identified non-filers are informed by SMS, e-mails and letters. The below image is the letter received by one of my friends for non-filing of income tax return. (Click on the images to open them in new browser windows)
How to reply to non-filing of Income Tax Return Notice?
In most of the cases, the IT department sends notices by emails or by SMS. You can respond to the notice through your income tax e-Filing Account. There is no need of personal presence in this matter.
Below are the step by step guidelines on how to respond to the notice;
- Login to your e-Filing account at incometaxindiaefiling.gov.in with your user name and password. If you do not have a login id password, you may have to register yourself first.
- Click on ‘Compliance Menu Tab’. Here you can view information about your non-filing status.
- Click on ‘View and Submit Compliance’ to submit your response to the non-filing compliance notice. (You can find another option ‘view my submission’. If you have already submitted your response, you can click on this option to view it)
- You can find three options i) e-Sahyog, ii) Filing of Income Tax Return & iii) Related information summary.
- If you have already filed your ITR and if the IT dept sent you a notice regarding any mis-matches then you need to provide information by clicking on e-Sahyog. This tab may not applicable for non-filing cases. (Read: Everything you would like to know about e-Sahyog online facility)
- Click on ‘Filing of Income Tax Return’ to update your ‘response’ & ‘reason’ for not filing your income tax return for a specific Assessment Year.
- Response can be either ‘you have filed ITR’ after receiving the notice (or) ‘ITR has not been filed’.
- Reason can be, i) Return under preparation, ii) Business has been closed, iii) No Taxable income & iv) others
- The third tab ‘related information summary’ will have details about the third-party information received by the tax department. For example : You might have booked Fixed Deposits with your banker and they would have deducted TDS on them. So, you need to mention whether this information relates to ‘self’ and the source of such income/expenditure (reason). Another example can be, you would have received ‘Gift’ in cash mode and invested in Shares. These reasons can be as below;
- Self & Investment/ expenditure is out of exempt income
- Self & Investment/ expenditure is out of accumulated savings
- Self & Investment/ expenditure is out of gifts/ loans from others
- Self & Investment/ expenditure is out of foreign income
- Self & Income from transaction is exempt
- Self & Income from transaction is below taxable limit
- Self & Income from transaction relate to different Assessment Year
- Self & Not Known
- Other PAN (This option is to be selected if the third party information relate to another taxpayer. In this case, the PAN of such other taxpayer is to be mandatorily provided.)
- Not Known (This option is to be selected if the taxpayer has no information about the third party information.)
- Need more information
- After providing all the required details, you can click on ‘submit’ button.
- You will receive an acknowledgement number for the submitted response.
- You can view the status of your response by clicking on ‘compliance tab’ and then on ‘view my submission’.
- Click on the ‘compliance Ack Number’ link to know the status of your response. You can click on ‘response pdf’ to download your response as a PDF file. The response submitted online by you (taxpayer) will be verified by the ITD (Income Tax Department) and if found satisfactory, the case will be closed.
If you make a huge or high-value financial transactions there are chances of getting a notice for non-Filing of Income Tax Return from the compliance Management cell. It doesn’t necessarily mean that income tax department is looking at you as a tax evader.
You may be an NRI (with no taxable income in India) invested huge money in a property located in India and you may end up in getting a notice for non-filing of return.
Kindly note that if there is no taxable income then there is no need to pay tax (or) file income tax return. You are only requested to furnish your response in the compliance module on the e-filing income tax portal. You can respond to the notice online. The entire procedure is very simple.
In case if you have to respond to the notice by post, you can enclose document proofs (if any) to support/justify your response. If you do not submit your response within the prescribed time-limit, your case might be transferred to the concerned Assessing Officer (AO). He/she may take up your case for scrutiny.
If you consider your case as a complex one, kindly consult a Chartered Accountant.
I hope you find this post useful & informative. Kindly share your comments.
(Image courtesy of Stuart Miles at FreeDigitalPhotos.net) (Post published post date : 16-April-2016)