Tax demand with 200% penalty, wrong deductions increase the difficulty

If you earn ₹50 lakh or more annually, be careful. The Income Tax Department is sending notices to such individuals en masse. The reason is discrepancies in deductions and exemptions.

Tax advisory platform TaxBuddy shared a case on X where a wrong deduction of Rs 10.65 lakh was claimed, resulting in an additional tax of Rs 3.14 lakh and a penalty of 200%, or Rs 6.29 lakh. The total cost was Rs 9.44 lakh.

Why increased strictness?

The tax department is now using advanced technology and automated systems. Your ITR is now matched with Form 16, company information, bank and other financial transactions. 

Minor errors that previously escaped detection are now immediately detected. 

The government's focus is on expanding the tax base and ensuring accurate reporting. High-income earners are being closely monitored, as they are likely to generate greater revenue.

What should taxpayers do?

If you've claimed a significant deduction, check your return immediately. Compare Form 16, HRA receipts, LTA, 80C, and 80D investment proofs. Proper documentation is essential for every claim.

Revised Return or ITR-U?

There is a limited time limit for filing a revised return. If that time has passed, there is the option of filing an Updated Return (ITR-U). Using ITR-U allows you to correct errors up to 48 months after the end of the assessment year. 

However, this incurs additional tax. The longer the delay, the greater the additional burden. Keep in mind, ITR-U cannot be used to reduce taxes or obtain a higher refund. It is only used to correct understated income or incorrect claims.

at last

In today's data-driven tax system, mistakes are hard to hide. Instead of waiting for a notice, it's better to investigate and correct them in a timely manner. Otherwise, a small mistake can lead to a significant financial setback.

Income Tax
income tax return