In India, anyone eligible for tax returns under a certain category needs to comply with the government’s Income Tax Act of 1961. Under the eligibility criteria, a person’s income determines the amount of tax they can pay. However, the various tax assessments in India can be rather confusing, and most individuals or companies may find tax return filings a difficult process.
There are different types of ITR filing systems and income tax assessments in India. For starters, there are various evaluations companies or individuals are required to file based upon their income. Here’s a brief look at different types of income tax assessments.
Assessment Types & Procedures for Income Tax
The Summary Assessment in income tax returns is carried out without any human interaction. In this process, taxpayers file their returns as per the regulations. For example, an assessee may deduct TDS and file a return. However, if the department records show an incorrect entry based on the PAN card provided, they may send a notice of adjustment to the done by the taxpayer.
If the assessee is liable to credit more than the amount of tax already paid, the government institution may send a notice under Section 143 (1). The taxpayer can respond to the notice and pay the owed amount to the income tax department within the time limit. All such Summary Assessment notices should be taken seriously.
With the Self Assessment type of income tax returns, a person determines the tax they are liable to pay themselves. An individual assesses their income and calculates the amount of tax, keeping in mind the rules and regulations set by the authorities.
After going through the ledger of the annual income and expenditure, and post calculating the TDS, advance tax, and depreciation, the amount of tax they are liable to pay for the financial year is calculated and the individual pays the income tax. This method is known as the self-assessment type of income tax return.
In the regular assessment type of income tax returns, the department entrusts the assessment of an individual to an authorised officer. The income tax officer then goes through the returns filed by an individual and procures their reports. This process ensures that the taxpayer hasn’t overstated or understated any expenses or losses in the financial year.
Furthermore, the assigned officer has to identify and point out any unpaid tax. In the traditional assessment method, the department sends a notice to the assessee and asks them to provide proof of the books of accounts and other accounting records. If the assessee is required to credit tax, they must respond accordingly.
Best Judgement Assessment
The Best Judgement Assessment of income tax occurs when an assessee fails to comply according to the notice sent to them by the department. Moreover, suppose the department issues a special audit. In that case, the assigned officer then calculates the amount of tax an individual has to pay in a notice. If they fail to engage in an argument regarding the tax amount, the officer scrutinises the accounts and concludes based on the best judgment method.
When an income tax claim involves two or more parties, and there is a dispute about which party is responsible for paying the tax, the Protective Assessment rule is applied. The IT officer proceeds with protective measures to ensure that the tax is collected from the right individual.
In such a case, the assessing officer, who doesn’t know the true nature of the ownership of an asset that needs to be taxed, considers the income of all parties involved in claiming ownership over the said asset. Post the settlement on the ownership claim, the income tax department decides which individual party is responsible for paying the tax and proceeds for claim settlements.
Income Escaping Assessment
The Income Escaping Assessment is used when an assessment officer finds that a taxpayer has escaped liable income tax. The income tax department can issue a notice to an assessee within four years from the end of the relevant financial year.
The Income Escape Assessment is applied in the following situations:
- When a person’s income is eligible for tax collection, but they have failed to file returns.
- When someone has understated income or overstated deductions and excess allowances.
- When there have been international transactions from the assessee, but there are no such records in the reports.
Based on the Income Escaping Assessment, the claims for some can be settled quickly by producing the necessary records or by claim settlement methods. However, for a few, the Income Escaping Assessment method can be lengthy and troublesome. For this reason, it is better to get in touch with the Chartered Accountant or legal services for settlements.