Seven ways to tackle Tax Notices @ Tax Assist - Alfred Jordan
Posted on March 01 2022
7 Necessary Steps to Tackle Tax Notices being sent in 2022 to Seafarers & NRI’s
There are many Seafarers and NRI’s, who have received Tax Notices, for Scrutiny from the Income Tax Department, in the past few months.
The Notices are generally for Scrutiny and Re-assessment of previous years, at times going back for 6-7 years.
Most of these notices have been issued on 31 March 2021 and the follow-on Notices are being issued now, for individuals who have not responded to previous Notices.
What are the reasons for receiving a Tax Notice?
Few of the reasons for receiving a Tax Notice and few of the red flagged transactions are:
- Not Filing your Tax Returns
- High Value Transactions
- Property Purchase or Sale
- Inward Remittance to India Accounts
- Outward Remittances from India Accounts
- Mutual Fund, Insurance and Other Investments
- High Value Fixed Deposits
- High Value Credit Card expenses
- Car and Vehicle purchase
- Large cash withdrawal or cash deposit
- Large inter account transfers
and many more instances.
How is a File selected for Scrutiny?
The Income Tax Departments has loads of data and analytical machines, to decipher the data and build a profile for a red flagged individual. Data is coming in from almost all transactions and departments, including Banks, Property Registration, Investment Companies, Insurance Companies, Credit Card Organisations and many more. Hence practically, each and every transaction you do, is generally accessible to the IT Department now a days.
Standing in the ITD and Income Tax Officers shoes, a simple logic to select cases for scrutiny and issue notices are for example: there is a Credit Card expense of more than 10 laks in the year, but the individual has not filed his Tax Returns, means that he has no Taxable Income (assumed, since he has not filed his Tax Returns). So how come he is spending 10 laks on a Credit Card? This is then red flagged and selected for scrutiny.
Grapevine is that, there is a process being set up, for direct transfer of data from online portals on purchases and also from the immigration desk at airports. Hence, if you have been making a lot of purchases on Amazon, Flipkart and Swiggy and the likes, and have been paying in cash, assuming that they will not be tracked, then this logic may not hold good in the future. Also, with the Immigration Desk data, soon the IT Department will exactly know if you have met your NRI status or not.
Hence, as I always advise, there is a fine line between tax planning and tax evasion. I will always recommend Tax planning to be done well in advance rather than resorting to tax evasion.
7 Steps to handle a Tax Notice
Here are 7 steps you need to take immediately to maneuver through this Tax Notice successfully:
- Check your Old Email ID or Address: if there is any Notice which has missed your eye. The Income Tax can send a physical Notice or on eMail, on the details available on records with them, which may be many years old. (Many Clients have changed their eMail IDs and also Residence Address in the past many years, and the Notice may be sitting in your old eMail ID waiting to be actioned).
- Speak to your Tax Advisor: and ask him to check on your behalf at the Department if there is any pending Notices (at times the Notices may not be delivered well, however the responsibility is on you to keep a track. Notices going unanswered, can get you into compliance and financial penalties).
- Acton immediately: If you have not received any Notices, then great, you need to thank God, but if you have, then you need to action it immediately. Now a days, for each delay in reply within the due date, entails a penalty of 5K to 10K an even more.
- Ignoring is not a solution anymore: 20-30 years back, an IT Notice could be ignored and could die a natural automatic conclusion, however the same is not true anymore. With the IT Systems and process being stronger than ever with the IT Department, each and every Notice is tracked automatically and needs to be adjudicated within the specified timelines. In case your documents and details are not well submitted and well represented, there are chances of a assessment order which may be un-favourable and may involve laks in taxes and penalties.
- Stich in time saves nine: Timely response and proper submission of details and documents with a professional representation by an expert Tax Advisor can save the day for you. However, it is better settled and nipped at the bud itself, rather than going for an Appeal after getting an adverse order. The moment you go to the Appeal and ITAT stage of fighting the Notice, the stakes are higher and expenses are also more in terms of professional fees among other challenges like, anxious days.
- File your Documents, Details & Returns: You may need to file your documents details and tax returns for the year for which you have received a notice for. It is best done in a proper manner with a consolidated and comprehensive submission of facts. Documents required are generally, PAN, Passport, CDC, OCI, TRC, Visa, Contact Letter, Bank Statements, Income and Expense Documents, Investment documents among others. If you are an NRI, and hold accounts overseas, the IT Officer can ask for your overseas Bank statements and Tax Returns also.
- Risks & Penalties: The IT Officer has the power to request the Banks and all other organizations for the Statements as well as to freeze your Accounts. The risks could be where he can add all the exempt income apply tax, interest penalty and assessment penalty which can at times, be as high as 150% or more of your total income for that year. Moreover, if you are an international traveler, there can be a notice sent to the immigration desk also where you may not be able to move out of India till the issue is sorted. The Income Tax Officer may also have powers to take approval and issue notices for other years, if there is a tax evasion detected.
With Seafarers and NRI’s, it is very critical that you hand the Notices effectively and efficiently, because if it is handled well at the bud, and in the beginning, it will not spiral out of control.
For any queries feel free to connect.
Mr. Rohit Bajoria has more than two decades of experience, in International & Cross Border Tax, NRI & Expat Tax, DTAA (Double Tax Avoidance), FEMA, Strategic Consulting, Asset Valuation, Accounting & Compliance, Banking & Financial Structuring, Cross Border Repatriation & Compliance among others. He has worked across the Country, advising and assisting Global Clients, in various domains of Cross-Border Tax, Banking & Finance, across Industries in the MNC, Government & Non-Government segments.
He has gained a wealth of experience in International Tax & Compliance, Finance & Restructuring, Valuation, Credit Appraisals & other verticals in Tax, Compliance & Finance.
Currently, he is a Partner in Tax Assist – Alfred Jordan and advises Clients located globally, on Cross Border Taxation & Compliance.
His other interests lie in writing articles in International & National Journals, on Tax & Financial matters and he is working on a Book which is to be published soon. He frequently writes articles in Asean Affairs & other periodicals & magazines. He is actively involved with a few Orphanages and tries to support them actively. He can be reached on rohit@TaxAssist.in or rohit@AlfredJordan.com
Disclaimer: The opinion above, are as per the understanding of the Tax Laws, Compliances, & Circulars, supported by various Process Notes, Circulars and Case Laws and Years of experience of the Author. Please consult your Tax Advisor, before taking any decision on this subject and article, because, the facts of each matter will be different and laws ‘may’ apply differently, for each situation. The Article is just for a general explanation, to quell basic queries, doubts, the anxiety and rumours in the Cross Border community, including NRI’s, OCI, PIO’s, Expats, Seafarers, Professionals among others. Any loss or penalty, or expenses or damages, of any nature whatsoever, will not be the liability of the Author or the Organisation.
Write a comment
Your email adddress will not be published. Required fields are marked