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Income Tax Notice

Posted on October 01 2020

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According to the report released by the Ministry of Finance, Government of India, the estimated number of Taxpayers in India stands at just 3.5 Crore people. That means, less than 4 people in 100 pay taxes.

Out of these 3.5 Crore people, 89% have income in the income range of Rs 0 – 5 Lakh, while on the other end of spectrum, only 1.3% of all tax payers have income in the range of Rs 20 Lakh!

What is the Number of Tax Payers in India and their Income Slabs?

The statistics clearly shows the inequality in the earnings of Indian people and the disparity in Tax paid by numbers – Imagine, in a country of 120+ crore people, only 4 lakh people earn above Rs 20 lakh.

Now, if you consider that many evade taxes, even then the numbers are so skewed that it is mind-boggling.

In a country of more than 100 Crore people, only about 4 Crore people file their Tax Returns and the bigger surprise is that although, only 1% of all tax-payers earn more than 20 lakhs in India, they account for a whooping 63% of all the taxes collected by the Indian Government. So 4.5 lakh Indians pay a total of Rs 90,000 crore of tax. That comes to an average of roughly 23 lakh per person!

This is the amount on inequality in India where 4% of the entire population files Tax Returns, and 1% of the population pays 63% of the total taxes.

As the current number of people who pay taxes in the country is “too small” the Income Tax Department has started to focus on non-filers and stop-filers to increase government’s revenue collection, and reduce evasion, said CBDT chairperson, Ms Sudha Sharma.

Ms Sudha Sharma (the CBDT chairperson), a 1976 batch-IRS officer, in her first communication to the Income Tax department after taking over the top post of the Central Board of Direct Taxes (CBDT) also doubted the accuracy of the data that only 43,000 people in the country have an annual income of more than Rs One crore.

“As tax collectors of the country we have a pivotal role to play in national growth. The huge target of budget collection, for the year may not be an easy task but we should consider that the base of only about 4 crore assesses, a mere 4 per cent of national population, wherein only 43000 show annual income over Rs One crore, is too small for a country like ours.”

“For sure, potential for tax collection is much higher than what we achieve at present,” Sharma said.

The Income Tax Department has started sending notices to non-filers for the Assessment Year 2009-10 onwards.

The Income Tax Department has been capturing information on financial transactions /activities relating to you through a monitoring system, (Non-filers Monitoring System - NMS). This year NMS has identified more than 44. lakh non-filers with potential tax liabilities for AY 2013-14.

Earlier the NMS in its previous cycles had identified more than 12 lakh and 22.09 lakh non-filers respectively, with potential tax liabilities. As a result of 1^st and 2^nd cycle of Notices being sent as per NMS, 30.68 Lakh returns have been filed and self-assessment tax of Rs. 4,733 crore has been paid by the identified target segment upto 31.03.2015. A large amount of the Taxes have been paid by Non Resident Indians (NRI / PIO / OCI) who have knowingly or unknowingly evaded Taxes and Tax Filing in India.

I am a Non Resident Indian. Why have I received an Income Tax Notice for Non-Filing of Income Tax Returns?

A large number of NRI / OCI / PIO’s have received Notices from the Income Tax Department for Non Filing of Income Tax Returns.

As per the monitoring system put in place by the Compliance Management Cell, it has been seen that most NRI’s have not been filing their Tax Returns in India due to various reasons like ignorance or evasion. Most NRI / PIO / OCI live in bliss that they donot require to File their Income Tax Returns in India because they are NRI’s.

However this is a mis-conception. Few Non Resident Indians may not be required to File their Income Tax Returns in India, however most Non Resident Indians are required by law to File their Income Tax Returns in India.

What are the transactions for a Non Resident Indian (NRI / PIO / OCI) which are reported to the Income Tax Department?

Most Non Resident Indians invest in Deposits, Properties, Mutual Funds and Shares, etc, or they do high value transactions when they visit India on holidays or vacations, purchase jewellery or use their Debit and Credit Cards, or issue Cheques. Each of the above transaction is reported to Reserve Bank of India or/and the Income Tax Department and it is very easy for the Income Tax Department to have a disconnect with your spending and your earnings as they have not been reported in the Income tax Returns. As the Indian economy is rapidly reducing cash transactions, most of your transactions are recorded with the RBI and ITD. So the only solution is to stay compliant and for Non Resident Indians it does not take much effort as it did earlier. You can do the Income Tax Return filing from overseas itself.

Does a Non Resident Indian (NRI / PIO / OCI) require to File Income Tax Returns in India?

Most Non Resident Indians (NRI / PIO / OCI) have NOT been filing their Income Tax Returns in India due to various reasons like ignorance or deliberate tax evasion. Most Non Resident Indians (NRI / PIO / OCI) live in bliss and assume that they donot require to File their Income Tax Returns in India because they are Non Resident Indians (NRI / PIO / OCI). Nowhere in the Income Tax Act does it say that a Non Resident Indian (NRI / PIO / OCI) is exempt from Filing Income Tax Returns in India. What the Income Tax Act says for Non Resident Indians (NRI / PIO / OCI) many sources of Income are exempt from Tax. Hence, what this means is that in most cases for Non Resident Indian (NRI / PIO / OCI) may not be liable to pay Income Tax in India, however they may be liable by law to File their Income Tax Returns. We have also seen that most Non Resident Indians (NRI / PIO / OCI) when they actually File their Income Tax Returns in India, get a Income Tax Refund rather than having to pay taxes. However it is advisable to check with a competent and qualified Chartered Accountant on the applicability of laws to yourself as this will differ from person to person.

What is a NMS (Non Filers Monitoring System) Income Tax Notice and is it applicable for a Non Resident Indian (NRI / PIO / OCI)

The Non-filers Monitoring System (NMS) is working under the Compliance Management Cell, New Delhi and was implemented as a pilot project to take action against and monitor people who are not filing their Income Tax Returns and may have potential tax liabilities. Data analysis and data crunching was and is being carried out at a very large manner to identify people (including Non Resident Indians) who have not been filing their Income Tax Returns about whom specific information was available with the Income Tax Department. Hence this Notice that you have received is very important and critical and it has been sent to you by much data analysis and after a proper process.

How are Non-fliers Monitoring System (NMS) works and how does it impact Non Resident Indians?

The Non-filers Monitoring System (NMS) was implemented to identify people with potential tax liabilities but who have not been filing their Income Tax Returns.

Few of the important features of this Notice and Initiative and their implications for Non Resident Indoans (NRI / PIO / OCI) are as follows:

·Data analysis has been conducted on a large scale to identify people (including NRI’s) who have not filed their Income Tax Returns despite conducting high-value transaction as reported in to the Income Tax Department.

·Bulk Data matching exercise is being carried out with the Financial Intelligence Unit (FIU) to include non-filers who had conducted high-value cash transactions and property transactions.

·Rules based on complex algorithms were applied to classify the cases as P1, P2, P3, P4 and P5 priority ratings for graded monitoring in terms of seriousness of non-compliance with Income Tax in India and this is applicable to Non Resident Indians (NRI / PIO / OCI).

·The Compliance Management Cell (CMC) sends the NMS Notice to the Non-Filer based on the data analytics and communicates the trigger transactions in the information summary and seeks to know the submission details of Income Tax Return. The trigger transaction is not the only transaction that the Income Tax Department is seeking information for. Your submission should be done after proper computation of your tax Liability for the year and if there has been an evasion, the Taxes due should be paid and then the Returns should be filed and the submission should be made.

·The Compliance module on the e-filing portal of the Income tax Department has the information related to people not filing the Income Tax Returns and has been made available to the specific person and it captures responses from the non-filers. SMS and emails are also being sent to this target segment asking them to access e-filing portal. Hence it very important to File the correct Tax Returns and the right submission.

·Online monitoring system will ensure further follow-up action in due course and is able track Income Tax Return Filing and Tax payment of the target segment which included Non Resident Indians (NRI / PIO / OCI).

·An online monitoring system will also ensure that information related to non-filers is effectively used by the field formation and there is expected to be scrutiny of cases based on further data crunching and analytics.

There are provisions of a penalty of 100% to 300% of the Tax payable for un-disclosed, under declared or un-reported income.

Hence it is very important to be sure of the submissions being done and the Income Tax Returns being filed by the Non Resident Indian (NRI / PIO / OCI) rather than just giving a thoughtless repose or not giving a response at all. Please take up this Notice is proper earnest else which can be sorted i at the right time or else it could bounce back later and has the potential to cause enough headache.

4 easy steps to deal with notice received for Non-Filing of Income Tax Return (NMS Notice) for a Non Resident Indian (NRI / PIO / OCI):

1. If you are a Non Resident Indian (NRI / PIO / OCI) and you have got an Income tax Notice for non-filing of your Income Tax Return from Compliance Management Cell, first you need to understand why you have received this Notice and for which years is the Income Tax Notice for.

2. Either after logging into your account on the e-filing portal of the Income tax Department or by the physical Notice that you have received, you will be able to see the details of the Assessment Years for which the Return has not been filed and for which years the Notice has been issued to you and what are the critical information and transactions information that has been received by the Income Tax Department (ITD).

3. Once you have had a look at the details you will need to determine if there was any tax liability other than the transaction mentioned. There may be only one or two transactions mentioned in the NMS Income Tax Notice for a Non Resident Indian, however you will need to determine any other liability or transaction that you have possibly done which could have had a tax liability in that particular Year.

4. Once you have made the Computation and done your Accounts to be sure of the Tax liability or the NIL Tax liability, you can go ahead and pay the taxes and file the Returns and/or submit the compliance.

It may be essential and important to avail the services of a Chartered Accountant who is well versed with Non Resident Indian (NRI / PIO / OCI) Taxation and DTAA provisions of the Income Tax to enable you to file the correct Returns and compliances and save you heart burn later.

There are provisions of a penalty of 100% to 300% of the Tax payable for un-disclosed, under declared or un-reported income.

In case you have already filed your Income Tax Returns:

If your Indian Income Tax Returns have already been filed, the information is generally automatically captured by the Income Tax Department and the Compliance Management Cell or you can update and send the details of such filing like the Date of filing return, Acknowledgment Number and Circle or Ward and City and send it to the Income Tax Department.

In case you need further help, you can always refer to our website. We at Tax Assist are just a call away.

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