Individuals have the freedom to self-assess income and pay taxes. However, that doesn't translate to the freedom to not pay taxes if one doesn't have a particular stream of income declared.
Tax evasion, an illegal activity, entails not filing income tax returns altogether or misrepresenting the amount taxable. It is different from tax avoidance, which is a legal activity. In tax avoidance, 'tax laws' help reduce the amount payable as tax.
Tax returns are scrutinised only if income tax authorities feel that tax evasion is involved. If they conclude that you have deliberately concealed income to reduce tax liability, you will be penalised.
What does scrutiny of income mean?
Income scrutiny essentially means evaluating the income tax return for its authenticity i.e. the income tax assessing officer will go through the returns filed and various other documents such as bank statement, the form 16, among other things, to check if there is any mismatch in tax liability assessed by the individual and the actual tax liability. The income tax officer will request all bank account statements, credit card statements, details of all family members, form 16 and other relevant documents as part of the scrutiny process.
In most cases, if a return is picked up for scrutiny, a scrutiny notice will be served within a period of one year from the month in which returns have been filed. So if you file your returns on 30th July, 2012, then you may get a scrutiny notice anytime on or before 29th July, 2013. The notice is in a standard format and it will contain relevant details of the tax payer and also will contain a date on which the tax payer needs to appear before the concerned income tax officer.
The tax payer need not attend this meeting in person. He can send across a representative to plead his case, which in most cases will be the chartered accountant of the tax payer.
How is an income tax return picked up for scrutiny?
There are various guidelines/thresholds in place which will determine the selection of income tax return for scrutiny. Some of them are:
What are the implications?
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