What is a scrutiny?

The Income Tax Act has a provision where if a tax officer feels you have hidden any income in your tax returns files and detects a conflict in the particulars recorded in your return, the issue can be escalated for a scrutiny.

Typically what happens is a scrutiny notice is served within a one year time frame from the end of the month during which you have filed your returns. Suppose you have filed your returns in the month of May 31, 2009 you may get a notice anytime on or before May 31, 2010. The notice contains relevant details of the tax payer, his Pan no. etc. and also provides a date on which the he needs to appear before the IT officer. The tax payer also has the provision of sending a representative in whose name a valid power of attorney has been issued. This usually is the chartered accountant of the taxpayer.

As part of the scrutiny process the tax officer will request all the bank account statements, seek details of all family members who reside with the tax payer, do a match analysis of income and expenditure, check on credit card expenditure, perks and other gift monies received, as well as interest free loans lent to relatives.

In the case of tax evaders, usually an audit is conducted on their businesses as for salaried employees its mandatory for the employers to deduct tax at the source.

How does TDS work?

According to the Income Tax Department, tax will be deducted at source whenever the taxable income exceeds the specified limits at the rates prescribed under Schedules to Income Tax Act. Basically, your employer deducts the tax part of your receipt and pays the deducted amount to the government on your behalf.

TDS applies not only to salaries (Section 192), but also interest on securities (Section 193), dividends (section 194), interest other than “interest on securities” (Section 194A); winnings from lotteries/crossword puzzles/card games (Section 194B), winnings from horse races (Section 194BB), payments to contractors/sub-contractors (Section 194C), insurance commission (Section 194D), payment out of deposits under National Savings Scheme (194EE) or on account of repurchase of units referred to in Section 80CCB (Section 194EE/Section 194F), commission/ brokerage (section 194H), commission on sale of lottery tickets (Section 194G), rent (Section 194I), professional/technical fees (Section 194J), etc.

Whether you’re an individual or a company, planning how much tax you will pay ensures that your income sources and investments are protected. This makes you, and the society to which you belong, secure and worthwhile to live in. It is an obvious win-win for you, and for the government.