7 Types of Income Tax Assessment Under Income Tax Act

Every financial year, as per the Income Tax Act 1961,  it is mandatory for individuals who earn above the basic exemption limit to file Income Tax Returns (ITR). Once submitted,  the Income Tax Department examines the accuracy of the details and assesses the taxability. This process of scrutinising a taxpayer’s ITR details by the income tax authorities is called income tax assessment. Read on to know the types of income tax assessment and how it works.

What is Income Tax Assessment?

In India, the basic exemption limit under the new tax regime is Rs.3 lakh for individuals up to 60 years of age. Thus, if any individual or entity earns more than Rs.3 lakh, they have to file income tax returns by self-calculating the amount they earned in the past financial year. After taxpayers fill in their income details diligently, it goes for assessment to the income tax authorities. The process of assessing ITR filing is commonly referred to as income tax assessment. However, there are different types of assessment in income tax that you should know about. 

Also Read

5 Heads of Income Under Income Tax Act

Income Tax Slabs In India For FY 2022-23 – Rates, New and Old Tax Regime

Types of Income Tax Assessment

There are primarily 7 types of assessment in income tax. Check

1. Section 140A: Self-Assessment 

When taxpayers calculate their total taxable income by themselves, it is known as self-assessment. Under the Section 140A, assessees have to calculate their income from various sources, adjust it against losses and deductions, and pay the tax applicable. 

Additionally, they have to reduce any advance tax or TDS amount paid by them before computing their taxable income. Thus, self-assessment tax is an amount over and above TDS and advance tax. The payment of this tax should take place within July 31 of every year by filling Challan No/ ITNS 280. 

2. Section 143(1): Summary Assessment

Summary assessment is also another type of assessment in income tax. Under Section 143(1), assessment is done without human intervention by cross-checking information provided by assessees with details stored by the Income Tax Department. Through summary assessment, one can spot clerical errors and inconsistencies in the ITR. 

However, this is an initial stage of assessment that helps in summarising any arithmetical errors, incorrect claims or disallowances. Thus, this process is carried out before the Income Tax Department sends an intimation letter to taxpayers for refund, error, or adjustment. 

3. Section 143(3): Scrutiny Assessment 

Now we move on to detailed scrutiny of Income Tax Returns filed by taxpayers. An Assessing Officer (AO) performs the role of conducting an inquiry and ensuring the correctness of income details provided by assesses.

For a thorough examination, an AO can demand the books of accounts or certain documents. The aim is to verify that there is no disparity between income earned and tax paid. Thus, an AO analyses whether taxpayers have understated their income or overstated the losses. 

If there is a mismatch, an assessee can pay the extra amount or accept refunds. However, if taxpayers are dissatisfied with the assessment, they can appeal to higher authorities or apply for recitation under Section 154. 

4. Section 144: Best Judgement Assessment

This type of income tax assessment takes place only under circumstances in which a taxpayer fails to cooperate with the IT department. In these cases, an AO has to compute the tax liability of an assessee with the best judgement in mind, without dishonesty. 

Best judgement assessment takes place when:

• Assessees fail to respond to multiple notices issued by the Income Tax Department instructing them to provide certain documents or books of accounts. 
• Taxpayers do not file income tax returns for the financial year within the due date specified by Central Board of Direct Taxes (CBDT). 
• Taxpayers fail to comply with special audits or written requests ordered by the Income Tax Department.
• Assessees do not maintain proper books of accounts. 
• AO is unsatisfied with the documents or information provided by an assessee. 

After hearing an assessee’s argument, an AO passes an order based on relevant documents and information known as best judgement assessment. 

5. Section 147: Income Escaping Assessment

Income escaping assessment is considered one of the most critical types of assessment in income tax. When an Assessing Officer believes that a taxpayer’s income has escaped assessment, he/she has the authority to order a reassessment. With sufficient reasons, an AO can reopen a case dating back to 3 years if the amount is more than Rs.1 lakh. That said, if an assessee conceals income of more than Rs.50 lakh (tax evasion), an AO can reopen a case as old as 10 years. 

The circumstances under which reassessment takes place are as follows:

• An assessee’s income is taxable, but ITR is not filed 
• The assessee filed ITR but understates income or overstates losses or deductions
• When taxpayers do not furnish reports on international transactions 

The duration of reassessment varies according to how gravely an income has escaped the initial assessment.

6. Assessment in Case of Search u/s 153A

Section 153A establishes a mechanism for the assessment of income of a searched individual. In this type of assessment in Income Tax, the Assessing Officer has the right to frame the searched individual’s assessment for the six assessment years that immediately precede the ‘search’ year.

7. Protective Assessment

This type of assessment in income tax focuses on those that are made to ‘protect’ the revenue’s interests. However, the income tax legislation doesn’t have the provision to impose income tax on anyone other than the person to whom it’s due.

Final Word

Income tax assessment is vital for the smooth and effective functioning of the Indian taxation system. To avoid a delay in receiving income tax returns, one should avoid any type of assessment in front of an AO. Furthermore, taxpayers should pay close attention to the various types of income tax assessment and file ITR accurately.

Looking to save on taxes – a bit meaningfully? Invest in Navi Tax Saver passive mutual fund scheme to get exposure to the top 50 Indian companies and save up to Rs.46,800 on your tax outgo!

FAQs