Unit- V- Assessment, Refund and Penalties

Unit- V

Assessment

Every taxpayer has to furnish the details of his income to the Income-tax Department. These details are to
be furnished by filing the return of income. Once the return of income is filed by the taxpayer, the next step is the
processing of the return of income by the Income Tax Department. The Income Tax Department examines the
return of income for its correctness. The process of examining the return of income by the Income Tax department
is called an “Assessment. The assessment also includes re-assessment and best judgment assessment. Various kinds
of assessment under the Income Tax Act, of 1961 are discussed below.

Types of Assessment

• Self-Assessment.
• Summary Assessment.

• Regular Assessment

• Scrutiny Assessment.

• Best Judgment Assessment.

• Re-assessment/income escaping assessment

i. Self Assessment under Section 140 A

Before submitting the return assessee is supposed to find whether he is liable for any tax or interest. For this
purpose, section 140(A) has been introduced in the Income Tax Act, where any tax is payable based on any return
required to be furnished under sec 139, or sec 142 or 148 or Sec 153A after deducting

• Advance tax if any payable

• TDS/TCS

• Relief u/s 90,91,90A

• MAT credit under 115JAA or 115JD

The assessee shall pay tax & interest before furnishing a return and proof of such payment will be accompanied
under the return of income. In short, we can say that the assessee himself determines the income tax payable. The
tax department has made available various forms for filing income tax returns. The assessee consolidates his
income from various sources and adjusts the same against losses or deductions or various exemptions, if any,
available to him during the year. The total income of the assessee is then arrived at. The assessee reduces the TDS
and Advance tax from that amount to determine the tax payable on such income. Tax if still payable by him, is
called self-assessment tax and must be paid by him before he files his return of income. This process is known as
Self-Assessment.

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ii. Summary Assessments under Section 143(1)

In this type of assessment, the information submitted by the assessee in the return of income is cross-checked
against the information that the income tax department has access to, it is a type of assessment carried out without
any human intervention, if any tax liability/refund arises on summary assessment, intimation u/s 143(1) will be
sent to assessee through e-mail. This intimation should be treated u/s 156(1) or a refund order. No separate demand
notice will be issued. In this process, the reasonableness and correctness of the return are verified by the
department. The return gets processed online, and adjustments for arithmetical errors, incorrect claims, and
disallowances are automatically done.

iii. Regular Assessment

The income tax department authorizes the assessing officer or income tax authority, not below the rank of
an income tax officer, to conduct this assessment. The purpose is to ensure that the assessee has neither understated
his income nor overstated any expense or loss or underpaid any tax.

iv. Scrutiny Assessment under Section 143(3)

Scrutiny Assessment is one of the assessments of the Income Tax Return under the Income Tax Act. As the
name suggests, the Assessing Officer (AO) critically and thoroughly inspects and examines all the details of
the Income Tax Return of the assessee to check that such details filed by the assessee are correct and genuine. The
AO tries to ensure that the assessee is not using any illegal practice to avoid tax liability in any manner. The AO
also gives the opportunity of being heard to the Assessee and thus assessee can produce and substantiate all the
details filled in the ITR with evidence. In case any discrepancy, disparity, or inconsistency is found in the ITR then
the AO is empowered to charge penalties from the assessee.

V. Best Judgment Assessment under Section 144

This type of assessment is made when the assessee is not complying with the tax provisions. The A.O., in the
absence of sufficient information of the assessee, according to the best of his ability, knowledge, and experience
makes such judgment. In short, Best judgment assessment refers to a situation where the officer computes the tax
payable as the assessee does not comply to provide or maintain necessary source documents or book of accounts
to support the claim when requested to submit.

In this scenario, the officer computes the tax liability based on his best judgment. The income tax act specifies
certain situations under which the income tax officer can compute tax liability based on best judgment,

• When the assessee does not file an income tax return

• When the assessee does not respond to the notice requesting the submission of documents

• The response of the assessee has crossed the limit permitted by the central board of direct taxes (CBDT)
• When the officer is not satisfied with the documents provided.

v. Income Escaping Assessment under Section 177

Income escaping assessment refers to income that has been omitted from the Income Tax assessment of a
particular taxpayer. The proceedings which govern a case of income escaping assessment can be initiated by
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the income tax department if certain incomes have escaped assessment or income has been assessed at a lower rate
or excessive loss or allowances have been allowed. In such a scenario, the assessing officer is entitled to reassess
the assessment of the relevant assessment year. An assessing officer should not merely act on rumor or suspicion
but rely on substantial evidence before initiating procedures. The assessing officer must conduct his operations in
good faith.

Every assessee, who earns income beyond the basic exemption limit in a financial year must file a statement
containing details of his income, deductions, and other related information. This is called the income tax
return (ITR). Once you as a taxpayer file the income returns, the Income Tax Department will process it. There are
occasions where the return of an assessee gets picked for an assessment. The assessment plays an important role
in the examination of the details submitted by a taxpayer by the Income Tax Department.

Advance Tax Payment

Advance tax payment is a system wherein taxpayers pay a share of their tax liability before the end of the year.
It is often looked at as a tax EMI. To make the most of this tax payment regime, one must become familiar with
all its aspects in due advance. This includes the advance tax payment dates, the amount of tax payable, eligibility
criteria, application process for financial year and more.

Advance Tax Payment Due Date & Amount

The tables below offer a clear idea about the advance tax due dates and liability for different categories of
taxpayers.

• Advance Tax Payment Date for Business Owners and Self-employed

Instalment Due Date of Tax Instalment Amount of Tax Payable

1st Either on or before the 15th of At least 30% of the advance

Instalment September tax liability

Either on or before the 15th of At least 60% of the advance

2nd December tax liability
Instalment

3rd Either on or before the 15th of 100% of the advance tax

Instalment March liability

• Advance Tax Payment Date for Companies

Instalment Due Date of Tax Instalment Amount of Tax Payable

1st Either on or before the 15th of At least 15% of the advance tax
Instalment June liability

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2nd Either on or before the 15th of At least 45% of the advance tax
Instalment September liability

3rd Either on or before the 15th of At least 75% of the advance

Instalment December tax liability

4th Either on or before the 15th of 100% of tax liability.

Instalment March

For example,

Mr Jay suggests that his estimated taxable income for the current year will be Rs.10,00,000. Based on the
assumption that no income deductions were claimed, the taxes to be paid will be Rs.112,500.
As per the rule, the advance tax payment will be planned like this –

• Advance tax payment of Rs.16875 (15%) will be paid before or on 15th June.

• Advance tax payment of Rs.33750 (45%) will be paid before or on 15th September.

• Advance tax payment of Rs.33750 (75%) will be paid before or on 15th December.

• Advance tax payment of Rs.28125 (100%) will be paid before or on 15th March.

Who Can Pay Advance Tax

A taxpayer whose total tax liability is more than Rs.10000 after adjusting TDS in a fiscal year must pay advance
tax. It applies to all categories of taxpayers, including – freelancers, professionals, salaried and senior citizens.

• Freelancers, Professionals and Salaried Taxpayers

Individuals whose tax liability in a fiscal year amounts to Rs.10000 or more have to pay advance tax. Regardless,
senior citizens who are 60 years of age or older and do not own a business are exempt from advance tax.

• Presumptive Earnings (Businesses)

Taxpayers who choose a presumptive tax regime under Section 44AD are required to pay the entire
advance tax liability in one instalment on or before 15th March. Nonetheless, they can also pay their tax liabilities
by the 31st of March.

• Presumptive Income (Professionals)

Independent professionals like - architects, doctors, lawyers, consultants, etc., come under the purview of the
presumptive tax regime under Section 44ADA.

Under the said tax regime, professionals have to pay the entire advance tax liability in a single instalment either
on or before the 15th of March. They also have the option to pay the whole amount by the 31st of March.

Advance Tax Late Date of Payment

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It must be noted that delaying advance taxes or paying less than the specified amount against the first due date
attracts a penalty at the rate of 1% interest on the remaining tax liability each month. Such an interest is paid under
Section 234B and Section 234C of the Income Tax Act 1961.

The interest penalty will also apply if taxpayers fail to pay the due amount by the next deadline. In case they fail
to pay the third or last instalment, they will be paying 1% S.I. on the default tax for each month until the entire
sum is paid.

A refund in an income tax return happens when you have paid more taxes than you actually owe to the
government. This can happen for several reasons, such as:

• TDS/TCS Deductions: If your employer or other sources deducted more tax than required.

• Advance Tax Payments: If you paid advance tax but your actual tax liability was lower.

• Excess Deductions & Exemptions: If you claimed deductions under sections like 80C, 80D, HRA, etc.,
reducing your taxable income.

• Rebate under Section 87A: If your taxable income is below the threshold for a rebate.

How to Claim a Refund?

1. File Your Income Tax Return (ITR) – Mention your total tax paid and compute the refund due.

2. Verify Your ITR – E-verify it through Aadhaar OTP, net banking, or by sending a signed copy to the Income
Tax Department.

3. Processing by the IT Department – They review your return, and if eligible, approve the refund.

4. Refund Credit – If everything is correct, the refund is credited to your bank account via ECS.

Check Refund Status:

You can check your refund status on the Income Tax e-filing portal or TIN NSDL website using your PAN and
assessment year.

Penalties in income tax can arise due to non-compliance with tax laws in India. Here are some common penalties
under the Income Tax Act, 1961:

1. Late Filing of ITR (Section 234F)

• ₹1,000 if income is below ₹5 lakh

• ₹5,000 if income is above ₹5 lakh

• No penalty if the total income is below the taxable limit

2. Late Payment of Tax (Section 234A, 234B, 234C)

• Interest @1% per month on unpaid tax for late filing (234A)

• Interest @1% per month if advance tax is not paid (234B)

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• Interest on deferred advance tax payments (234C)

3. Underreporting or Misreporting of Income (Section 270A)

• 50% of tax due for underreporting

• 200% of tax due for misreporting (false claims, fake expenses, etc.)

4. Non-Filing of ITR (Section 271F - No Longer Applicable After FY 2017-18)

Earlier, a penalty of ₹5,000 was applicable for non-filing, but now replaced by Section 234F (late filing fee).
5. Not Maintaining Books of Accounts (Section 271A & 271B)

• ₹25,000 penalty for not maintaining books as required

• 0.5% of turnover or ₹1,50,000 (whichever is lower) for not auditing books (if applicable)

6. Concealment of Income (Section 271C & 271D/E)

• Penalty equal to tax amount for failing to deduct/pay TDS

• Equal to the loan amount if cash loan transactions exceed ₹20,000 (Section 271D)
7. Not Linking PAN with Aadhaar

• PAN becomes inoperative, and penalties may apply for non-compliance.

Income Tax Return (ITR)

ITR stands for Income Tax Return. The central board of direct taxes (CBDT) releases all the ITR forms and
specifies the procedures to be followed. This article provides an in-depth understanding of the definition of
ITR and the types of ITR forms.

What is ITR?

Income Tax Return (ITR) is a form in which the taxpayers file information about their income earned and
tax applicable, to the income tax department. The department has notified 7 forms i.e. ITR-1, ITR-2, ITR-3,
ITR-4, ITR-5, ITR-6 & ITR-7 to date. Every taxpayer should file his ITR on or before the specified due date. The
applicability of ITR forms varies depending on the sources of income of the taxpayer, the amount of the
income earned and the category of the taxpayer like individuals, HUF, company, etc.

Types of Income Tax Return Forms

Filing of income tax return is mandatory for all persons who have taxable income in India. Not filing an
income tax return could lead to penalty and prosecution. In this article, we look at the different types of income
tax return forms and their applicability.

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i. Form ITR-1 SAHAJ

The individuals who may use this form are mentioned below:

• Salaried individuals.

• Individuals in receipt of a pension.

• Income from one house property (excluding loss brought forward from a preceding financial year).

• Income from other sources.

• Individuals whose total income is within 50,00,000.

Now, to the individuals who are not permitted to use this form:

• Income from more than one house property.

• Income from lottery or racehorses.

• Profits/Losses under the head "Capital Gains".

• Income from agriculture/ exempt income in excess of Rs. 5000.

• Income from business or profession.

• Income received which is taxable.

• Income taxable under Section 115BBDA; which states that any income of the assessee exceeding 10 lakh
rupees, earned through dividends, paid or distributed by any domestic company, the income-tax payable shall be
the aggregate of:

• The amount of income-tax calculated on the income by way of such dividends aggregating Rs 10,00,000, at
the rate of 10%; and
• The amount of income tax that would be chargeable on the assessee if his/her total income was reduced by the
amount of income by way of dividends.
• To be concise, the income mentioned in the above lines cannot be filed in Form ITR-1.
• Income which is referred to in Section 115BBE, which taxes certain unexplained items deemed as income at
the flat rate of 30%, irrespective of the slab of income.
• Person claiming relief of foreign tax paid under Section 90, 90A or 91.
• Any resident who owns an asset or financial interest outside India.
• Holds the authority to sign any account located outside India.
ii. Form ITR-2
This form may be used by an individual or a Hindu Undivided Family whose total income is not inclusive of
income derived from a proprietary business or profession, or income derived from a partnership firm. ITR-2 cannot
be filed by a company, LLP, or any other legal entity. Form ITR-2 must be filed by an individual or HUF by the
31st of July every year, and the 30th of September on occasions of audit under Section 44AB. Know more about
ITR-2 Form.

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iii. Form ITR-3

Form ITR-3 is to be used by a person who is ineligible to file returns on Form ITR-01, whereby income under
the heads 'Profits and gains of businesses or profession' from a proprietary firm shall be ignored. Moreover,
individuals below the age of 60 with an income of more than Rs 2.5 lakhs; the individuals aged between 60 and
80 with an income of more than 3,00,000 and individuals above 80 years whose income was more than 5,00,000
during the year 2016-17 may also file ITR-3 return filing. Regarding the time-limit for filing Form ITR-3, Form
ITR-3 must be filed by an individual or HUF by the 31st of July every year, and the 30th of September on occasions
of audit under Section 44AB.

iv. Form ITR-04

ITR-4 is for those taxpayers who have opted for the income scheme under Section 44AD, Section 44ADA and
Section 44AE of the Income Tax Act, and whose turnover doesn't exceed 2 crores. If the turnover exceeds the
suggested limit, the assessee would have to file returns under Form ITR-3. If the taxpayer has any of the following
incomes, Form ITR-4 should not be filed.

• Income from more than one house property.

• Income from lottery or racehorses.

• Income under the head "Capital Gains".

• Agricultural income in excess of rs 5000.

• Income taxable under Section 115BBDA.

• Income which is referred to in Section 115BBE.

• Income from speculative business and other special incomes.

• A person claiming relief of foreign tax paid under Section 90, 90A or 91.
• Any resident owning an asset or having a financial interest outside India.

• Any resident receiving income from any other sources outside India.

v. Form ITR-5

Form ITR-5 may be used by a firm, LLP, a co-operative bank, other co-operative societies, other AOP/BOI, or
an artificial judicial person. It is not meant for the use of the following persons:

• Individuals.

• Hindu Undivided Families.

• Companies.

• People who file returns on Form ITR-7.

vi. Form ITR-6

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Form ITR-6 may be used by those who don't claim an exemption under Section 11 of the Income Tax Act,
which deals with exemptions permitted to charitable trusts and institutions, which implies that this form can be
used by a private limited company, one person company and limited company.

vii. Form ITR-7

Contrary to ITR-6, Form ITR-7 may be filed by the companies who claim an exemption under Section 11 of
the Income Tax Act, which deals with exemptions permitted to charitable trusts and institutions. Moreover, the
following returns of income, which is also inclusive of charitable trusts and institutions, shall be filed in Form
ITR-07:

• Charitable and Religious Trusts.

• Section-8 Company

• Political parties.
• Incomes of persons claiming return under Section 10.

• Trade union association referred to in sub-clause (a) or (b) of Section 24.

• Body/authority/board/trust/commission referred to in Clause(46) of Section 10.

• Infrastructure debt fund referred to in Clause(47) of Section 10.

• Any educational Institution.

• Business trust.

• Investment fund.

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