Department Flagged High-Risk Non-Filers; You Might Receive a Tax Notice Under Section 148A if You Haven’t Filed Your ITR

If you are someone earning a taxable income and yet haven’t filed your Income Tax Return (ITR) in the past few years, you might get in trouble. According to the department, the tax authorities use a risk management strategy (RMS) to flag high-risk non-filers. Through this approach, the Income Tax Department has identified individuals who have undisclosed income liable for income tax. The list of such non-filers is ready and has already been approved by the Income Tax Board. By using this list, Income Tax Assessing Officers (AO) will take action, including sending tax notices under Section 148A, etc. However, this action is only limited to specific financial years, including 2018-19, 2019-20, and 2020-21, as per the circular specified.

How did the Income Department find out about the Non-Filers?

An individual who earns above a certain specified amount or fulfills any conditions stated in Section 139 of the Income Tax Act, 1961, is required to file an ITR. It is mandatory for such individuals to file an ITR, yet many individuals avoid doing so. The department has collected and reviewed data from sources including TDS/TCS statements, AIS, statements of financial transactions (SFT), etc. The data was then compared with the records of filed tax returns. This helped them find people who earned taxable income but didn’t report it. Now, the department is taking action against these identified people.

According to the IT department, people who haven’t filed their tax returns but may owe taxes are identified by looking at information from sources like SFT Data, TDS/TCS records, import-export data, and the overall taxpayer profile. They use a system called the RMS (Risk Management Strategy) to check for cases where people might have unpaid taxes. This process has been applied to tax years 2019-20, 2020-21, and 2021-22 to find these high-risk cases.

Parameters of RMS System used by the Income Tax Department

According to an expert, RMS includes reviewing a large amount of data to identify the individuals who are liable to file ITR but are not doing it. The key sources include the Statement of Financial Transactions (SFT), TDS/TCS, AIR/CIB data, etc.

• Statement of Financial Transactions (SFT) identifies large amount transactions like large bank deposits or buying a property.
• TDS (Tax Deducted at Source) and TCS (Tax Collected at Source) records give information on income from different sources.
• AIR (Annual Information Return)/CIB (Central Information Branch) data gives a wide range of financial information about a person.
• Foreign remittances, exports, and import data help to identify people involved in international financial activities.

Additionally, systems are also used to capture and track the person who makes large transactions and may owe taxes. The Central Board of Direct Taxes (CBDT) focuses on encouraging people to voluntarily follow the tax rules by identifying those who haven’t filed their returns and prompting them to do so.

What should you do now?

You cannot avoid the tax notice once you have been captured on the list of non-filers. The deadline to file an ITR-U (for AY 2021-22) was March 31, 2024. Now, taxpayers who didn’t report all their income have two choices to minimize the amount of damage:

1. The first option is that the individuals can apply for a condonation of delay, which includes taking permission to file late. Experts say that this option might take a few months, if not weeks.

2. The second option is to pay the tax with interest. This cannot avoid the tax notice, but it can stop the interest from increasing and ask for the penalty not to be charged.

According to another expert, the deadline for filing an updated tax return (ITR-U) has passed, and taxpayers who are considered high-risk can look for other ways to fix this. This may include the following ways:

1. Corrections under Section 154: If there are clear mistakes in the tax return, taxpayers can ask the authorities to correct them if they meet the conditions.

2. Legal solutions: If unfair penalties or tax assessments are given, taxpayers can file for an appeal or take legal action through the right channels.

3. Voluntary disclosure and settlement: This includes talking to the tax authorities, admitting your mistakes, and trying to reach an agreement to avoid facing legal consequences.

There are no good options during this situation as it’s too late to fix the problem; therefore, select the best among the bad options.