Assessment in income tax is needed to maintain the accuracy of information provided by the Income Tax payer. Read on to know all about it!
Income tax is a source of revenue for the government and it is used in the development of the nation and to fund several public schemes. It is mandatory for all the employed citizens of India to file Income tax returns.
To ensure that all the details and information provided while filing income tax returns are accurate, an assessment is done. It can be done by the taxpayer, or in certain cases, the Income tax department takes the initiative. In this article, we will discuss Assessment in Income Tax.
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Income Tax
Income tax is a direct tax charged on the income of an individual or a company. It is levied by the central government and collected by the Income Tax department, which functions under the Central Board of Direct Taxes (CBDT). The CBDT consists of 2 members from the Indian Revenue Service (IRS) and 3 members from the Indian Audit & Accounts Service (IA&AS).
The income tax act of India is legislation of the Government of India which provides for the levy and collection of income tax. The act was first introduced in 1922, but it has been revised several times since then. It is applicable to all individuals who are residents of India and have an income from any source within or outside the country.
The income tax department is the department that collects income tax from the people. It is also responsible for filing of return by the assessee. The income tax department has its website where you can check your status, view your returns and get all information regarding income tax.
If you are confused about the procedure of filing income tax, Vakilsearch can help you. The team of our expert lawyers and legal experts will guide you through the entire process and make sure all steps are completed smoothly. They will contact you and solve all your queries.
Income Tax Ordinance 2001
The Income Tax Act of 1961 is the main legislation governing Income tax in India. It was enacted with effect from April 1, 1962. The law has undergone many amendments since it was first introduced and now covers a wide range of subjects such as income chargeable to tax, exemptions, deductions allowed from total income, computation of taxable income, etc. There are also certain provisions for relief under this act that are applicable to all taxpayers irrespective of their type or status.
Income tax Ordinance 2001 India is a law that was passed by the parliament in 2001. It is an amendment to the Income Tax Act of 1961. The main purpose of this ordinance is to provide for a more simplified and easy taxation process for the taxpayers, as well as to bring about certain amendments in the income tax act.
The provisions of this ordinance apply to income from all sources in India, whether received directly or through any entity and irrespective of its source.
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Types of Assessment in Income Tax
Assessment is the process of determining the amount of income tax liability for a taxable individual. The assessment procedure begins with the filing of a return by the assessee under section 139(1) of the Act.
Assessment in Income Tax can be done in two ways:
Best Judgment Assessment
It is done by assessing officers. The Assessing Officer has to determine whether any income is chargeable to tax and if so, then at what rate it should be charged. The Assessing Officer can also make an assessment for past years as well, in case he thinks that there was some mistake in the previous assessment or if new evidence comes up which could have been used earlier but was not taken into account by the assessing officer before.
Self Assessment
Self Assessment is a type of assessment in income tax in which the taxpayer assesses his income and taxes payable. It is an alternative to the traditional assessment method by which the Assessing Officer collects information about taxable income from taxpayers, calculates their tax liability, and issues notices for payment of taxes.
Under this method, a taxpayer has to file his return on or before 15th June every year. He has to pay any outstanding tax due within 30 days after the filing of the return (15th July). The Assessing Officer will verify all returns filed by taxpayers against their records and if necessary issue notices for clarification/revision etc.
If you want help with Self Assessment you can contact Vakilsearch and their team of legal experts will help you not only with Assessment but also with the filing of income tax returns.
Scrutiny Assessment
Scrutiny assessment is an audit of the income tax returns filed by a person. It is conducted to verify whether the information provided in the return is true or not and also to check if any additional income has been left out from the return. Scrutiny assessment may be initiated on a random basis, as well as after specific complaints are received against a person.
Summary Assessment
The summary assessment is a procedure provided under the Income Tax Ordinance 2001 (ITO) to assess the income tax of an assessee without conducting any inquiry or audit. It is a process of assessing income tax based on information available to the Income Tax Department.
Protective Assessment
Protective assessment is used to safeguard the interests of revenue when there are disputes or uncertainties about the income reported.
Example for Better Understanding:
Suppose there is a disagreement between two individuals over rental income. In such a case, the assessing officer may temporarily attribute the rental income to one of the individuals, even if the income owner does not dispute this addition. The purpose of this approach is to ensure that the revenue’s interests are protected while the dispute is resolved.
During a protective assessment, the assessing officer documents all relevant details and maintains records of the assessment until the issue is settled.
Income Escaping Assessment Under Section 147
If taxable income has not been assessed correctly, the Income Tax Department can initiate an assessment to correct this. This can be done for cases as old as 6 years. If an Income Tax Officer suspects that income has escaped assessment, they may issue a notice under Section 148 to reassess the taxpayer’s income.
Conditions for Income Escaping Assessment:
- Non-Filing of Return: If the taxpayer has not filed a tax return for their taxable income.
- Understated Income or Excess Claims: If, after filing the return, it is found that the taxpayer has significantly understated their income or claimed excessive allowances or deductions.
- Failure to Report International Transactions: If the taxpayer has not provided reports on international transactions when required.
The period during which Income Escaping Assessment can be conducted may vary. It is advisable to consult a Chartered Accountant for guidance on handling such assessments.
Regular Assessment
A regular assessment is conducted to verify the accuracy of the information provided in a taxpayer’s income tax return. An Assessing Officer, appointed by the Income Tax Department, is responsible for this process. The appointed officer must be at least an Income Tax Officer or higher in rank. Their role is to ensure that the taxpayer has accurately reported their income, properly stated their expenses, and paid the correct amount of tax.
Conditions for Regular Assessment:
- Scrutiny Requirement: When a taxpayer’s return is selected for scrutiny, the Income Tax Department will inform the taxpayer before proceeding with the assessment.
- Document Verification: The taxpayer may be asked to produce certain documents, such as accounting records. The Assessing Officer will examine these documents thoroughly.
If the Assessing Officer finds that the details provided are accurate, they will confirm the return as filed. If discrepancies are found, the officer may make necessary adjustments to the assessment.
Conclusion
Income Tax returns must be filed by all employed people. The income tax act, of 1961 mentions some rules and regulations regarding filing income tax. It is important to know the right process for filing income tax. If you need any help, you can contact Vakilsearch and take help from their team of experts. All your queries will be solved and the legal experts will help you in filing income tax returns.
After income tax is filed an assessment of individual in income tax is done. It can be a self-assessment or it can be done by the ITO department. For self Assessment, it is important that the income taxpayer mentions all the details carefully and honestly. All the tax exemptions enjoyed by the assessee must be mentioned as well.
FAQs
What is Scrutiny Assessment?
A scrutiny assessment is a detailed examination of your income tax return by the tax authorities. It involves a thorough verification of the claims, deductions, and overall accuracy of the information provided. This process aims to ensure that the correct income is declared and taxes are paid accordingly.
Under what conditions is Income Escaping Assessment taken under?
Income escaping assessment is initiated when the tax authorities believe that a portion of your income has not been declared in the original tax return. This could be due to reasons like undisclosed income, incorrect deductions, or errors in computation. It's essentially a process to recover the unpaid tax amount.
What is done under Regular Assessment?
Regular assessment is a routine process where the tax authorities verify the basic details of your income tax return. It's a relatively simpler assessment compared to scrutiny or income escaping assessments. The primary goal is to ensure that the return is complete and accurate at a fundamental level.
How is an Income Tax notice issued for Scrutiny Assessment?
An income tax notice under Section 143(2) is typically issued to inform a taxpayer about the selection of their return for scrutiny assessment. This notice outlines the specific reasons for scrutiny and requests additional information or documents. It's essential to respond to the notice within the specified timeframe.
What is the best judgement Assessment and under which Section is it covered?
Best judgement assessment is carried out when the tax authorities are unable to determine the correct income of a taxpayer due to insufficient information or non-cooperation. Under Section 144 of the Income Tax Act, the assessing officer can estimate the income based on available evidence and impose tax accordingly. This is usually a last resort when other assessment methods fail.
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