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.
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.
There are primarily 7 types of assessment in income tax. Check
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.
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.
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.
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:
After hearing an assessee’s argument, an AO passes an order based on relevant documents and information known as best judgement 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:
The duration of reassessment varies according to how gravely an income has escaped the initial assessment.
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.
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.
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.
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If taxpayers fail to file their ITR within the due date (usually July 31), they will have to pay a late filing fee of Rs. 5,000. For those with an annual income between Rs. 2.5 lakh and Rs. 5 lakh, the fee is Rs. 1,000. That said, if an assessee misses the last date as well, a penalty fee of Rs. 10,000 applies to them.
An Income Tax Assessing Officer is an income tax officer who has the authority to conduct assessments of income details submitted by taxpayers. This officer is appointed by the Central Board of Direct Taxes to assess or reassess taxable income, which does not follow the determined guidelines.
Individuals or entities who earn not less than Rs. 2.5 lakh and not more than Rs. 5 lakh are subject to an income tax rate of 5%. However, under Section 87A, they can avail tax rebate that makes their income tax-free. Nonetheless, these individuals do have to file ITR.
An income tax notice is a written communication that notifies an assessee when an assessing officer picks their ITR for scrutiny. If taxpayers receive this notice, they should respond to it quickly and submit the documents requested.
Scrutiny assessment is when an AO decides to conduct a detailed analysis of one’s ITR. The time limit for sending a notice to the assesses under Section 143(2) is six months from the end of the relevant financial year.
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