Types of assessment in Income Tax
Types of Assessment in Income Tax: A Comprehensive Guide for Taxpayers
In this post, we will discuss the different types of income tax assessments in India. From self-assessment to scrutiny assessment, we will break down each process, its purpose, and what you need to know to stay compliant with tax regulations. Understanding these assessments helps you navigate your tax responsibilities more effectively.
Let’s look at each section:
What is an Income Tax Assessment?
Once you file your income tax return, the Income Tax Department reviews it to check and verify the details you provided. You will get your income tax refund if everything is correct and follows the rules. In short, an Income Tax Assessment is the process where the Income Tax Department examines your return to ensure the information is accurate and compliant.
Types of Income Tax Assessment
1. Self Assessment
The taxpayer adds their income from various sources and calculates their tax liability. They adjust their income for any losses and apply for eligible deductions or exemptions. After figuring out the total income, they subtract any advance tax paid or TDS deducted to determine if more tax is owed. If there’s still a tax to pay (Self-Assessment Tax), they must pay it before filing their tax return. This process is called self-assessment.
2. Summary Assessment
Summary assessment is the first step in tax assessment, where a basic review is done without detailed scrutiny. It mainly checks for clerical errors, such as:
- Mathematical or calculation mistakes in the tax return.
- Incorrect claims or deductions.
- Errors from forms like 16, 16A, or 26AS.
- Disallowed expenses under sections like 10AA or 80IA to 80IE if the return is filed late (after the due date under Section 139(1)).
All adjustments are made if the taxpayer is notified in writing or electronically.
3. Scrutiny Assessment
An officer will review the filings to ensure the taxpayer’s computed tax liability is accurate, not overstated or understated. The goal is to confirm that the taxpayer has correctly reported income, not claimed excessive losses, and paid the right amount of tax. A detailed review will be conducted.
If any discrepancies are found, the taxpayer can either agree or, if dissatisfied, appeal to the Commissioner of Income Tax Appeals (CITA), then to the Income Tax Appellate Tribunal (ITAT), and if needed, to the High Court or Supreme Court.
4. Regular Assessment
The Income Tax Department authorised officers, usually income tax officers or higher, to conduct assessments. This ensures taxpayers accurately report their income and comply with tax laws when filing their returns.
The Central Board of Direct Taxes (CBDT) sets guidelines to flag cases for scrutiny assessments. If a taxpayer’s case is selected, they receive a notice in advance. This notice must be sent within six months after the financial year in which the return was filed.
Taxpayers must provide their financial records and documents to verify their income during the assessment. The Assessing Officer reviews these records to confirm the reported income or make necessary adjustments. If discrepancies are found, additional taxes may be applied.
5. Best Judgement Assessment
In a best judgement assessment, the tax officer estimates the tax due based on their own judgement when the taxpayer fails to provide the required documents or maintain proper records. The officer must act fairly and not misuse this power.
This type of assessment happens in certain situations, such as when:
- The taxpayer doesn’t file their income tax return.
- The taxpayer doesn’t respond to a notice requesting documents.
- The taxpayer’s response is delayed beyond the time limit set by the Central Board of Direct Taxes (CBDT).
- The officer is not satisfied with the documents provided.
6. Income Escaping Assessment
If the assessing officer believes that any taxable income has been missed in a financial year, an income-escaping assessment will be conducted. The income tax department can review up to 6 years of past tax returns if the amount in question is ₹1,00,000 or more.
However, as per the 2021 Budget, the time limit for reopening such cases has been reduced to 3 years. For serious tax evasion cases, where concealed income exceeds ₹50 lakh, cases can be reopened for up to 10 years.
7. Assessment in Case of Search u/s 153A
Under Section 153A, an income tax officer can search and review any individual’s assessment for verification. The IT department can check assessments going back up to 6 years in the case of a search.
Now that you know the different types of assessments under the Income Tax Act, you are better set to file your taxes. Understanding this helps you navigate the tax system more confidently, especially if you receive notifications or orders related to your tax liabilities.
Penalty for Non Filing of Income Tax Returns
If the income tax return is filed after the due date, there are three possible penalties:
- There is no penalty if the gross total income is ₹2.5 lakh or less.
- If the total income is between ₹2.5 lakh and ₹5 lakh, the penalty is ₹1,000.
- If the total income is more than ₹5 lakh, the penalty is ₹5,000.
As per the latest budget, returns cannot be filed after 31 December, and penalties won’t apply after this date. However, the deadline was extended for FY 2020-21.
If the return is filed after the due date (under Section 139(1)), the assessee cannot carry forward losses except for house property losses for that financial year.
Additionally, unpaid taxes will be charged a 1% interest on the tax liability for every month (or part of the month) until the amount is paid. For FY 2020-21, the ITR filing deadline is 30 September. However, if self-assessment tax liability exceeds ₹1 lakh, it must be paid by 31 July 2021 to avoid 1% interest under Section 234A.
Conclusion
Understanding the different types of income tax assessments is important for taxpayers, as it simplifies the complex tax system. Knowing about these assessments makes it easier to file taxes, respond to notifications, and stay in compliance with tax regulations.
We have reached the end of this post. Please share your queries with us in the comment section below.
FAQs
1. Who is the Assessing Officer?
Ans: An Income Tax Assessing Officer is a tax officer with the authority to assess taxpayers’ income details. The Central Board of Direct Taxes designates this officer to evaluate or review taxable income that does not adhere to the established guidelines.
2. What is the maximum time limit for the assessment of income tax returns?
Ans: The minimum time period for an assessment under the Income Tax Act is nine months from the end of that particular financial year.
3. How can I calculate my income tax using summary assessment?
Ans: If any problems or variations with your income tax are discovered during the summary assessment, the income tax department will contact you.
