Types of Assessment in Income Tax

posted on Apr 04, 2024

Understanding Your Tax Evaluations

Any assessee whose income in a Financial Year exceeds the basic exemption limit is required to produce a statement outlining his income, deductions, and other relevant information. We refer to this as the Income Tax Return (ITR). The Income Tax Department will process the income returns when you, the taxpayer, file them. In certain situations, an assessee's return is chosen for an assessment based on criteria established by the Central Board of Direct Taxes (CBDT). In this article, we will explain different types of income tax assessments in detail. - CA Tushar Bansal

What are the Types of Income Tax Assessments?

As the financial year ends, the income tax authorities examine and evaluate the individual income tax returns; this process is known as income tax assessment. The income tax department and individuals in India are required to comply with the structured flow of tax assessment outlined in the income tax regulations. Here are the different types of income tax assessments every taxpayer should know about.

Regular Assessment

The Assessing Officer or Income Tax Authority, who is not a lower-ranking income tax officer, is authorised by the income tax department to carry out this assessment. The goal is to make sure the assessee hasn't underpaid taxes, inflated any expenses or losses, or undervalued his income. The criteria by which a taxpayer's case is selected for a scrutiny assessment have been established by the CBDT.

The Department will notify an assessee well in advance if they are about to be the subject of a scrutiny assessment. Nevertheless, if six months have passed after the end of the fiscal year in which the return was submitted, no such notice may be given.
To support the income he reported on his return, the assessee will be required to provide the books of accounts and other supporting documentation. The assessing officer issues an order either confirming the filed income return or adding to it after confirming all the information that is available. The assessee must reply appropriately to this demand for income tax.

Self-Assessment

In self-assessment, the assessee is required to independently calculate income tax returns by deducting various deductions and losses from generated income. Before submitting income tax returns, the individual in question must settle any outstanding amounts related to self-assessment tax if the computed amount above the tax is deducted at source (TDS) or advance tax.

To put it simply, self-assessment tax is the amount that remains after taxes have been deducted at source (TDS) and advance tax and must be paid to the income tax department. The excess amount may arise if the taxpayer falls into a higher slab yet receives capital gains or any other type of income on which TDS is withheld at a reduced rate. If the assessee submits income tax returns without paying the self-assessment tax, the filing will be deemed invalid and will incur interest due to non-compliance with legal restrictions.

Summary Assessment

This kind of evaluation is done without the assistance of a human. In this kind of assessment, the data that the assessee provides in his income return is compared to the data that is accessible to the income tax agency. Throughout the procedure, the department confirms that the return is accurate and reasonable. Online processing of the return allows for automatic adjustments for math mistakes, false claims, and disallowances. These include:

Mathematical miscalculations errors
Errors in form16, 16A, or 26AS
Incorrect claim
Incorrect disallowance
Disallowance of expenses under section 10AA, 80 IA to 80 IE if the return is submitted beyond the due date specified under section 139(1)

For instance, according to departmental records, the taxpayer's claimed credit for TDS is discovered to be greater than what is available against his PAN. A change in this area may result in a higher taxpayer tax obligation. If the assessee is obliged to pay tax after the aforementioned adjustments, intimation under Section 143(1) will be provided to him. The assessee is required to reply to this notification appropriately.

Scrutiny Assessment

The Income Tax Department may designate an Income Tax Officer to evaluate the tax filing following the submission of an income tax return. Under Section 143(2), an Income Tax Notice notifies the taxpayer of this. For a comprehensive examination, the officer has the authority to seek information, papers, and books of accounts for scrutiny. The officer then determines how much income tax the taxpayer must pay. Should there be a discrepancy between the amount owed and the income, the taxpayer has two options: pay the excess or get a refund.

The taxpayer may request a recital under Section 154 or submit a revision application under Sections 263 or 264 if they are dissatisfied with the assessment. The taxpayer may file an appeal with higher authorities, namely the CIT (A), ITAT, High Court, and Supreme Court, in that order, if the Scrutiny Assessment order is still deemed incorrect.

Best Judgment Assessment

The assessing officer must operate honestly and impartially in order to base the evaluation in the best judgment assessment on his best judgment. When an assessee fails to comply with a request to present essential source documents or a book of accounts to support the claim, the officer may use the best judgment to calculate the tax payable. In this case, the officer uses his best judgment to calculate the tax liability. The income tax statute outlines specific circumstances in which the income tax officer may use best judgment to determine tax liability.

When the assessee fails to submit a tax return
When the assessee reacts to the notification asking for supporting documentation
The assessee's response exceeds the threshold allowed by the Central Board of Direct Taxation (CBDT)
When the officer expresses dissatisfaction with the submitted documentation

Income Escaping Assessment

The assessing officer can assess or evaluate the assessee's income if he has good reason to suspect that any taxable income has eluded assessment. Four years after the conclusion of the pertinent assessment year is the deadline for releasing a notice to reopen an assessment. These are a few situations that lead to reevaluation. These include:

Although the assessee has not yet submitted his return, he has taxable income.
It is discovered that the assessee underestimated his income or claimed an excessive amount of allowances or deductions after filing his income tax return.
When asked to provide reports on foreign transactions, the assessee has neglected to do so. For many taxpayers, the assessment process may conclude swiftly, but for others, it may prove to be extremely taxing. Chartered accountants are a good resource to consult if you feel uneasy interacting with income tax officers regarding your case.

Penalty for Not Filing IT Returns

There are three possible outcomes if the return is submitted after the deadline:

There will be no penalty if gross total income is Rs. 2.5 lakh or less.
The penalty will be Rs. 1000 if the total income exceeds Rs. 2.5 lakhs and reaches up to Rs. 5 lakh.
A penalty of Rs. 5,000 will be imposed if the total income exceeds Rs. 5 lakh.

According to the most recent budget, returns will not be filed beyond December 31st, and there will be no penalty. Nonetheless, the deadline for submitting has been extended for FY20–21. The assessee will not be permitted to carry forward losses once the filing deadline under section 139)(1) has passed, except for losses incurred on house property within the financial year.

If delinquent taxes are not paid, there will be a 1% tax liability fee for each month or portion of a month until the amount is paid. The deadline of filing ITR for FY20–21 is September 30. However, if the tax liability from self-assessment exceeds one lakh, the tax must be paid by July 31, 2021, to avoid a 1% interest under Section 234A.

ConclusionThe efficient operation of the Indian tax system depends on the assessment of income taxes. Any kind of assessment in front of an AO should be avoided in order to prevent a delay in the receipt of income tax returns. Additionally, taxpayers need to correctly file their ITRs and pay special attention to the many kinds of income tax assessments.

FAQ

Q1. What is an income tax assessment?

The procedure by which the government assesses taxpayers' financial data to ascertain the amount of taxes they are required to pay or are eligible for refunds is known as an income tax assessment.

Q2. Which type of assessment applies to me?

The kind of assessment that is appropriate for you will vary depending on your situation. If you file a basic tax return and have a low income, you can qualify for summary assessment. If not, you'll probably have to evaluate yourself. The income tax authorities may choose to scrutinise your return if they have any reservations about it.

Q3. Who is an assessing officer?

An income tax official with the authority to evaluate the income information that taxpayers submit is known as an income tax assessor. The Central Board of Direct Taxes appoints this official to evaluate or reevaluate taxable revenue that deviates from established standards.

Q4. Is there a time limit for income tax assessments?

Yes, tax authorities usually have a window of time in which to evaluate or reevaluate your income tax. This limit can be a few years or several years following the tax year, depending on the jurisdiction.

Q5. What is an income tax notice?

When an assessing officer selects an assessee's ITR for examination, the assessee is notified in writing through an income tax notice. If taxpayers receive this warning, they ought to reply right away and send in the necessary paperwork.

Q6. What is the penalty for failing to file IT returns?

Taxpayers will have to pay a late filing cost of Rs. 5,000 if they do not file their ITR by the deadline, which is typically July 31. The cost is Rs. 1,000 for individuals whose yearly income falls between Rs. 2.5 lakh and Rs. 5 lakh. However, an assessee will be subject to a penalty fee of Rs. 10,000 if they miss the last deadline as well.