Do’s and don’ts of issuing a check
The Financial Express
Director, Tax & Regulatory Services, EY India
Every year, the income-tax authorities randomly select cases on the basis of a computer aided system for detailed scrutiny. The selection is based on certain criteria like tax exemptions/relief claimed, high value transactions, etc., to name a few.
What should you do if you receive such a notice? A notice does not necessarily mean you have done anything wrong. People are seen struggling when a notice is issued leading to a lot of stress. The main reason is that most taxpayers do not maintain proper documentation of their tax positions.
The first basic step which a tax payer must do is maintain all the documents used to file the tax returns for each source of income and the proof of taxes paid.
The documents one should keep carefully are:
- Computation of Income
- Basis of preparation of your computation along with tax positions
- Copy of Form 16 issued by employer
- Copy of Form 16A issued by your deductor ( like bank for fixed deposit interest)
- Copy of Form 26AS
- Proof of deductions claimed like LIC premium, FD receipts, etc.
- Receipt of donations made, In case of house property income, a valid rental agreement, housing loan certificate and copy of the title deed.
- If there is income from sale of securities/capital assets (like land) copy of purchase/sale deed, copy of demat account statement and documents evidencing source of funds
- Copies of bank statements for the financial year along with narrations for entries which are not self-explanatory.
It is critical to cross-verify your Form 26AS with the return and sort out with the relevant parties for any mismatches of tax credit well in advance.
In recent times, notices issued by authorities have laid emphasis on income/ assets held outside India. It is imperative that all documents substantiating such income/assets be kept in your tax file readily.
It could include:
- Copy of all the pages of your passport (including expired passports)
- Copy of all bank account statements held outside India along with narrations for entries which are not self-explanatory
- Documents evidencing ownership of any assets held outside India or income arising outside India
- Proof of residency and summary of your travel with entry and exit dates from India.
Keep filing/documents history
The income tax authorities can re-assess the income of an individual up to seven years (17 years – if you have foreign assets) from the end of the financial year in which the return is filed. Hence, it is highly recommended that the tax file be retained for future tax years as well. For example, if you have filed your return of income for the FY16, then you have to retain your documents till 31 March 2023. In case you held foreign assets as well, it would be March 31, 2033.