Types of income tax assessment in India

Under the income tax law in India, there are five ways to assess income tax liability. In this guide, we explore each of these in detail.

Self-assessment under Section 139

When tax is deducted as TDS and it is less than the actual tax liability, the taxpayer is liable to conduct a self-assessment of the pending liability and pay taxes accordingly. According to the I-T department, ‘where a return has been furnished under Section 139 and the tax payable based on that return as reduced by any tax already paid under any provision of this Act exceeds five hundred rupees, the assessee shall pay the tax so payable within 30 days of furnishing the return.’

Summary assessment without calling the taxpayer under Section 143(1)

Summary assessment is the preliminary checking of the income return. At this stage, the income tax department checks for the following in your ITR without detailed scrutiny:

• An arithmetical error
• An incorrect claim
• Disallowance of loss claimed
• Disallowance of expenditure indicated in the audit report but not taken into account in computing the total income
• Disallowance of deduction claimed under Sections 10AAand 80IA to 80-IE, if the return is furnished beyond the due date
• Addition of income appearing in Form 26AS/16A/16, which has not been included in computing the total income in the return

See also: Types of taxes in India

Scrutiny assessment under Section 143(3)

As the name suggests, a detailed scrutiny of the ITR is carried out at this stage to ascertain the correctness and genuineness of the claims and deductions.

According to the income tax department, the objective of scrutiny assessment is to confirm that the taxpayer has not understated the income, has not computed excessive loss or has not underpaid the tax in any manner.

Manner of scrutiny

• The assessing officer (AO) serves the taxpayer a notice, requiring him/her to attend his/her office or to produce or cause to be produced any evidence on which the taxpayer may rely in support of the Notice under Section 143(2) should be served within three months from the end of the financial year in which the return is filed.
• The taxpayer or his/her representative will place their argumentsand supporting evidence. After hearing the argument and verifying the evidence, the officer can assess the total income/loss of the taxpayer and determine the sum payable or refund of any amount due.

Best judgment assessment under Section 144

This assessment is carried out according to the best judgment of the AO based on supporting evidence. This assessment takes place in cases where the taxpayer fails to comply with the requirements specified under Section 144.

Scope of assessment under Section 144

Under Section 144, the AO assesses the best of his judgment in the following cases:

• If the taxpayer fails to file the return required within the due date prescribed under Section 139(1), a belated return under Section 139(4), a revised return under Section 139(5) or an updated return under Section 139(8A).
• If the taxpayer fails to comply with all the terms of a notice issued under Section 142(1).

Manner of assessment

• The AO will serve the taxpayer a show-cause notice, asking them why the assessment should not be completed to the best of his judgment.
• If the AO is not satisfied with the taxpayer’s arguments, he will proceed with the assessment to the best of his knowledge. Following the due procedure, the AO will determine the tax liability of the assessee. Under Section 153, the time limit for assessing this section is within 21 months from the end of the assessment year in which the income was first assessable.

Income escaping assessment under Section 147

If a taxpayer tries to evade tax payment by escaping assessment, the AO may assess or reassess such income in the course of the proceedings.

Issue of notice

The officer must serve the taxpayer a notice under Section 148, requiring him/her to furnish an income return within three months from the end of the month in which such notice is issued. These 3 months may be extended by the AO.

Circumstances in which a notice can be issued

A notice can be issued only when the information with the AO suggests that the taxable income escaped assessment. Prior approval of specified authority is required before issuing such notice. However, no prior approval is required if the AO has passed an order under Section 148A(d), with prior approval of the specified authority, stating that the income is escaping assessment.